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The U.S economy expanded at a 3.5 percent pace in the third quarter, better than expectations

Friday 26 October, 2018

Daily Currency Update

The United States Dollar appreciated again across the board in overnight trading, as risk-off environment continued to dominate market sentiment. The US Dollar Index futures are up hitting 96.62 overnight and increased around 0.13 percent. Many sources drove momentum, chief among them was the equity market. The S&P500 is on track for its 13th negative day out of 15 and is 8% lower than its late-September high. The catalysts for the falls are numerous and varied. However, the general sentiment is that there will be tighter future global growth. US-China tensions and softer earnings reports aren’t helping either. The falls in equity markets spearheading a general flight to safety across financial markets with the Greenback being a prime beneficiary of the shift in asset allocations. US growth differentials vs. other G20 countries remain high, and the Fed is deliberating the merits of hiking beyond the neutral rate into a restrictive territory, which is not priced. Moving into Friday, the economic calendar still interesting with USD Gross Domestic Product Annualized (QoQ) (3Q A) at 3.5% vs. consensus of 3.3%, USD Gross Domestic Product Price Index (3Q A) at 1.7% vs. 2.1%. USD Personal Consumption (3Q A) at 4.0% vs 3.3%. Later this morning we will have Pending Home Sales. FOMC Member speeches today come from Clarida and Mester are 12:15 pm and 5:30 pm EST respectively.

Key Movers

The loonie has given up the gains seen after the Bank of Canada raised interest rates on Wednesday. BoC head, Stephen Poloz stated that Canada was approaching a level of neutral interest rates and removed the word “gradual” from the statement when referring to the expected pace of tightening. However, the risk-off environment since then has seen USD/CAD push back up through 1.3100 handle. Second-tier data out of the domestic economy on Thursday saw Canadian average weekly earnings (nonfarm) rise by 2.9% on a yearly basis in August while oil prices rebounded allowing the US crude price to rise 0.8% touching $67.35. Recent moves imply new technical levels to consider. On the downside, we see USD/CAD being relatively well supported at the 1.3029 level in the near term while topside moves are expected to meet resistance at the 1.3157.
The Euro is weaker this morning when valued against the U.S. Dollar falling to a fresh low of 1.1335 following the European Central Bank monetary policy' meeting the risk of a no-deal UK departure from the European Union. European Central Bank President Mario Draghi said on Thursday the longer Brexit talks drag on, the more the private sector will have to prepare for the possibility of Britain crashing out without a deal. On the data front yesterday, we saw the release Germany business confidence survey which slipped to 102.8 from 103.8 the previous month amid growing concerns about trade disputes and other economic issues. Looking ahead today and the macroeconomic calendar in the EU with all eyes on the US release of the first estimate of Q3 GDP, foreseen at 3.3% vs. the final Q2 4.2% reading. From a technical perspective, the EUR/USD pair is currently trading at 1.1353. We continue to expect support to hold on moves approaching 1.1331 while now any upward push will likely meet resistance around 1.1400.
Beleaguered UK Prime Minister, Theresa May is set for another Brexit showdown with her members today with an appearance before the Tory backbench 1922 Committee due in Westminster. The group of backbenchers will no doubt give the PM a rough ride with many hardline Brexiteers likely to pour scorn on her plans for a future relationship with the bloc. The PM stated earlier this week that a withdrawal agreement was “95%” complete however the Irish border conundrum remains, meaning the UK may be forced to stay within a Customs Union with the EU to stop a hard border being needed between Northern Ireland and Ireland. The complexities of solving this issue are where the divisions lie. GBP/USD made a brief appearance above 1.30 yesterday lunchtime before rapidly retreating to trade close to the 1.2940 handle.
The Australian Dollar is slightly stronger this morning when valued against its American counterpart. Opening the morning at 0.7085, in familiar moves was sold off to critical support levels of 0.7054 as equities continue to bounce around, most notably energy and industrial stocks pulling the ASX 200 lower. Geopolitical risks continue to hamper any upside through the 71 US cent handle in the short term as there was little to come out of RBA Governor Guy Debelle’s panel discussions yesterday on future monetary policy decisions. The Australian dollar managed to recoup losses, bouncing off support to see overnight highs of 0.7090 as Federal Reserve member Raphael Bostic came out in favor of a further hike this year but most notably mentioned that there was no need to keep the “Foot on the gas pedal.”
The New Zealand dollar remained mainly range-bound through trade on Tuesday bouncing between intraday lows at 0.6535 and session highs at 0.6570. Despite ongoing pressure on equities and US treasury yields, amid a heightened risk-off environment, moves within currency markets have mainly been modest. Traditional haven plays are seeing traction with the JPY and CHF finding support; however, the contagion and fear that has plagued stocks appear not to have spread to currencies at this point. With little macroeconomic data on hand, we expect the NZD will remain range-bound, responding to newswire headlines as risk sentiment continues to evolve. While well supported on moves approaching 0.6435 we expect upside momentum to be mostly muted as pressure on commodities, led by oil, and the broader risk-off tone weigh on investors’ appetite to drive the Kiwi higher and extend on recent moves toward 0.66.

Expected Ranges

  • USD/CAD: 1.3130 - 1.3150 ▲
  • EUR/USD: 1.1335 - 1.1375 ▲
  • GBP/USD: 1.2887 - 1.2990 ▼
  • AUD/USD: 0.7076 - 0.7106 ▼
  • NZD/USD: 0.6534 - 0.6567 ▼