The US dollar makes a 17-day high amid the general dovish tone of G7 central banks
Thursday 28 March, 2019
Daily Currency UpdateThe US dollar index had a positive day again in yesterday’s trading session. The US dollar rose on anxiety about the global economic outlook, with both global stock markets opening weaker along with government bond yields touching lows and central banks of developed countries spooking the markets with more dovish tones. The latest data is showing weakness in retail sales and US housing. Furthermore, consumer sentiment is deteriorating. Another likely factor for a stronger US dollar is the optimism expressed by Kansas City Fed Chief Esther George about the US economy. She said that she supports the Fed’s plans to hold off on any interest rate moves in the short-term.
NDRC researcher Zhang Yansheng anticipates a US-China trade deal soon, but he said that the conflict between the two economies would continue. Robert Lighthizer and Treasury Secretary Steven Mnuchin are visiting Beijing today and tomorrow, while Vice Premier Liu He plans to travel to the US next week.
Another factor influencing a strong US dollar is the yield of US treasuries hitting the lowest levels in 15 months, and the European Central Bank trying to find ways to alleviate the negative interest rate policy in Europe. The US dollar index is increasing over 0.30 percent at the time of this writing, despite gross domestic product coming in at 2.2 percent, while 2.3 percent was expected.
Key MoversThe Loonie had a lousy day in yesterday’s trading session and it continues to weaken this morning. Yesterday, Statistics Canada said the trade deficit approached $4.2 billion in January in comparison with a record deficit of $4.8 billion in December. However, the deficit was more extensive than expected with the read at C$3.5 billion.
The USD/CAD pair closed 0.19 percent higher, but at one moment during yesterday’s trading session, it increased 0.46 percent (weaker Loonie). Without more economic data, the reasons for the Loonie’s weakness included crude oil price performance, a stronger US dollar, and the risk off environment in global markets. Regarding crude oil, the latest news is a tweet from Trump asking the OPEC to, “…increase the flow of oil.” Trump said that oil prices have risen too high and called on the OPEC to do its part to alleviate the price increase. The price of crude oil fell immediately after his tweet.
More locally, Canadian bonds also showed an inverted yield over the last few days after US Treasury bonds showed the same pattern on Friday. This has spooked market participants, and the Loonie has suffered the consequences. Market participants perceive that the BoC is already in a dovish mode and could follow the Fed to freeze rates for the rest of the year.
Technically speaking, the USD/CAD pair is trading at 1.3428, a few pips away from the resistance of 1.3340. As mentioned yesterday, the USD/CAD rate seems stuck from last Thursday between the 1.3340 and 1.3443 levels. Other resistance and support levels to watch once the USD/CAD picks a direction are the March 7th top at 1.3467 and the significant support at around the 1.3300 handle.
Little on the domestic calendar yesterday for the single currency. Draghi was speaking in Frankfurt, and he didn’t give any insight or information we haven’t heard before. He did, however, sound a bit more upbeat by mentioning the resilience of the economy and that they remain confident of reaching their inflation target. That said there are plenty of challenges, and that will keep their hands tied for the most part. The EUR/USD pair trades at 1.1222 this morning representing a 0.19 percent fall.
Big news from yesterday was Theresa May giving her conditional resignation if her deal was given full support. If her deal is not supported, she will continue as PM. While this announcement has won some support among the Eurosceptic rebels, it still failed to win the backing of the Democratic Unionist Party, which props up her minority government. The party said it would vote against the deal if May brought it back a third time as they cannot support a deal with the current backstop arrangement. However, it remains to be seen if the speaker of the House, John Bercow, will allow a vote to go ahead. He has already told government there must be significant changes to the deal to let it to be voted on. If MV3 does get the go-ahead (possibly on Friday), some analysts expect her to still fall short by 40-50 votes.
It was a busy night for UK politics and an evening where most were hoping a clear winner would emerge from a series of votes on an alternative Brexit path. We don’t always get what we wish for, and last night’s results were the testament to this. There was no clear majority on eight alternatives, so once again we still have a tremendous amount of uncertainty.
The Sterling lost some of the ground it previously made when Jacob Rees-Mogg pledged his support of May’s deal. The Cable followed suit and moved from its day high of 1.3264 to 1.3075 this morning.
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The Aussie dollar has been stuck in a relatively tight trading band through the last month, struggling to break above the resistance at 0.7150, yet remaining largely well supported on moves approaching 0.7070/0.7050. Investors appear reluctant to extend upside moves as domestic economic performance falters and global growth concerns weigh on RBA expectations.
With little of note on today’s domestic docket, the AUD has remained range bound leading into next week’s RBA policy announcement, wherein a definitive dovish shift could be the catalyst to force the dollar outside recent limits.
The AUD/USD trades at 0.7075 at the time of this writing.
The Kiwi, still feeling the effects of a dovish rate statement, was dealt another blow with the release of ANZ Business confidence. New Zealand’s business confidence fell to -38 in March, contradicting the market expectation of a slight improvement to -24.3. The data released today will likely boost expectations of an early RBNZ rate cut; therefore, the outlook for the Kiwi Dollar is negative.
The Kiwi is still weakening against the US dollar this morning, trading at 0.6792 and representing a decrease of 0.06 percent. The next event will be when we hear from RBNZ Governor Orr later this evening.
- USD/CAD: 1.3368 - 1.3467 ▲
- EUR/USD: 1.1204 - 1.1248 ▼
- GBP/USD: 1.3025 - 1.3151 ▼
- AUD/USD: 0.7059 - 0.7110 ▼
- NZD/USD: 0.6750 - 0.6824 ▼