The Loonie Finds Support from Risk Sentiment.
Daily Currency UpdateThe Canadian Dollar enjoyed a mostly quiet day on the economic calendar yesterday, with little to excite markets except for the Bank of Canada’s Wilkins speech. Wilkins outlined growing confidence in the macroprudential measures which she suggests, has improved the quality of household debt. However, she also cautioned that higher debt levels would mean a more significant impact from rate hikes, perhaps tempering her earlier comments on improved household debt. The Loonie shifted slightly on the back Wilkins comments although the most significant gains were to come from the repercussions of President Trump comments. The on-going criticisms of the Federal Reserve took the shine off the greenback and saw it plummet across the board. Risk-sentiment shifted off-shore with the loonie being a primary benefactor.
The Canadian dollar moved through the first support of 1.3029 but can’t seem to run past the psychological support backing of 1.30 to test second support of 1.2987. Resistance levels sit at 1.3042 the overnight high and 1.30719. Canadian Retail Sales numbers m/m for June posted in line with expectations 0.2% and excluding autos printed 1.4% vs. expectations of 0.6%. Gold continues to move higher reaching and yet stalling at the 1200 dollars an ounce. West Texas Intermediate is also 2.0% higher trading at 67.15 at 8:00 am EST. BoC Governor Stephan Poloz will speak at the Jackson Hole Symposium at 12:25 pm on Saturday.
Key MoversThe Greenback fell yesterday against its major rivals on the back of a combination of broad US dollar weakness and soaring US equities. US equities hit an all-time high for the first time since January 26 which was led by technology and utility companies, the benchmark S&P 500 index traded up 0.6% to 2,872.93. US equities, equaling the longest-ever bull run, has been supported this year by strong earnings growth.
FOMC minutes of the Fed's last policy meeting are released today at 2 pm. With two rate hikes already put in place this year by the Fed and the recent criticism from President Trump on Fed Chair Jerome Powell’s tightening policy, market participants are keen on receiving clues to the tightening path the Fed will take. Chair Powell speaks at the Jackson Hole Symposium on Friday; the symposium is a gathering on global central bankers. This year theme at the symposium is the economic impact of superstar firms like Amazon.
From a technical perspective, the EUR/USD pair extended its Trump-triggered rally to a high of 1.1600, its highest in over a week. The USD/JPY pair also traded higher reaching an overnight high of 110.54. Despite concern fears of a no-Brexit deal, the Pound Sterling rallied to a high of 1.2924 against the US dollar.
The Euro continued its positive gains into the start of Wednesday, posting about a 1% gain to 1.1573 to start the day. Again, the catalyst was off-shore forces, however, with little to drive the Euro domestically. It was, of course, the Greenback that drove the momentum shift, as it found itself losing ground across the board on the back of comments from President Trump.
The Euro has quickly moved away from the levels last week when we saw 13-month lows, and now EUR/USD is testing 1.16 once again. This move has been driven by the reduced risk and concern around the situation in Turkey as well as the small progress between the US and China with regards to trade negotiations. It should be noted though that both of these risks remain prevalent and therefore so does the risk to the Euro.
Is Brexit Secretary Dominic Raab showing up his predecessor David Davis already? Well, judging by the reaction from sterling yesterday this may very well be true. Sterling has long hung on the progress of Brexit talks, and the same could be said with yesterday’s performance as the pound headed northwards
The pound was yesterday’s best-performing currency. While nothing concrete was announced, the tone was generally positive with a commitment from both sides to continue talks and negotiations ongoing without interruption. The most interesting comments perhaps came from Raab when he said that “Our challenge for the coming weeks is to try and define an ambitious partnership between the UK and the EU – a partnership that has no precedent.” This is the case, and there indeed is no expected precedent in the Brexit outcome a factor that has caused the markets to continually be on edge and create the volatility that we have seen in the pound ever since 2016, and until March next year, this is set to continue.
The Australian Dollar when valued against the world's reserve opens stronger this morning; the gains were first led on Tuesday after the release of the RBA monthly Minutes where Governor Philip Lowe raised confidence amongst investors. He reiterated that the RBA would eventually raise interest rates if they were to see progress made on unemployment and inflation adding that any move will “likely be up not down.” The AUD/USD continued its bullish trend intraday and during the North American session touched a high of 0.7381 as the greenback continued to extend its move lower following remarks from U.S. President Trump that the Fed's path of monetary policy tightening is hindering fiscal stimulus efforts to boost the economy.
Supporting the aussie has also been optimistic comments from Chinese officials despite US President Donald Trump's view that it was unlikely for them to reach an agreement in Washington later this week. Chinese foreign ministry stated that they wanted to settle the trade dispute with the US via negotiations and added that they were hopeful that both sides could reach a good outcome.
Looking ahead we have Q2 Construction Work Done and the MI Leading Index, meanwhile in Brisbane Deputy Governor Debelle is giving a speech in Brisbane titled “Low inflation” at the Economic Society of Australia Business Luncheon. From a technical perspective, if we stay above 0.7364 resistance the next level in sight is 0.74c. Support is sitting at 0.7345 and 0.7294.
The New Zealand Dollar was supported by further weakness from the US Dollar overnight as the kiwi touched the US 67 cents briefly for the first time in two weeks; as both the DXY and US yields were lower overnight. The NZD/USD cross looks to have bottomed out in such period of 0.6550 and becomes a critical longer-term support level.
The NZD climbed steadily throughout the overnight seeing local session highs of 0.6670 with a small pullback following the latest GlobalDairyTrade auction whereby the price index fell 3.6% on its last sale. With the prior reading flat, dairy prices are now 10% lower since May.
The Kiwi dropped to 0.6650 following the auction before continuing its march higher in the North American session to eventually settle just below resistance at the US 67 cent mark ahead of this morning’s Retail Sales reading which is expected to show a small gain of 0.4% for the 2nd quarter of 2018.
- USD/CAD: 1.3001 - 1.3171 ▼
- CAD/EUR: 0.6604 - 0.6641 ▼
- CAD/GBP: 0.5935 - 0.5967 ▼
- CAD/AUD: 1.0407 - 1.0460 ▲
- CAD/NZD: 1.1417 - 1.4920 ▲