The Market Direction Remains Fixated on Trade Tensions
Friday 20 July, 2018
Daily Currency UpdateHaving touched 12-month highs the U.S Dollar index moved sharply lower following President Trump's proclamation of concern regarding the strong performance of the world’s base currency. Trump suggested the “strong currency was putting the United States at a disadvantage, making our exports more expensive.” The comments forced the Dollar downward against Yen touching 1-week lows while the Euro bounced back through 1.16 advancing some 100 points having touched intraday lows at 1.1576.
This is not the first time Trump has voiced his displeasure with the strength of the US Dollar, however, his attack on the Federal Reserve and its policy of monetary policy tightening, a core driver of recent USD strength, raising concerns as to the independence of the Federal Reserve. Having fallen one tenth of a percent, the dollar correction was contained mainly as investors assessed the likelihood the President would weigh in and disrupt the sovereignty of the FOMC and Federal Reserve, however, Trump’s comments add another variable that needs to be considered when assessing long-term expectations.
Attentions remain squarely fixed on political pressures with little macroeconomic data on hand to drive broader direction into the close.
Key MoversThe loonie couldn’t capitalize on the Trump Headlines and the subsequent USD correction, ending the session 0.8% weaker with USDCAD closing above the critical 1.3250 level at 1.3273. Recent NAFTA Headlines signaling the US might be keen to negotiate the agreement first with Mexico haven’t been CAD supportive, but the USDCAD was still trading below 1.32 during the Asian session.
As the European session started with UK missing on Retail sales data and CNH continuous weakening, the USD gained momentum. The CAD was then pressured downward following US Auto tariffs prospects and a weak ADP Canadian employment report (-10.5k jobs in June). USDCAD reached a new monthly high at 1.3290 before correcting slightly to 1.3273 after Trump headlines.
The Canadian dollar opens the North American session a full percent higher against the US dollar. The catalysts that have given the loonie strength today were positive Retail Sales and inflationary numbers. Retail Sales for May posted 2.0% vs. estimates of 1.1% and CPI year over year for June printed at 2.5% vs. previous of 2.2%. The robust economic fundamentals have given market participants room to factor in a more probable cause for the Bank of Canada to raise interest rate hikes at the end of the year.
The EURUSD ended the session slightly higher at 1.1642 after being down more than 0.60%, below the critical 1.16 level, at 1.1575. It was all USD strength that followed through the Asian session on some risky Headlines coming from China plus the continuation of CNH depreciation and then the robust US Jobless numbers. Enter Trump. Someone released some Headlines from an interview with the US President, that’ll be published later today, stating that he was “not thrilled” about the Fed hiking rates and the subsequent USD strength against the Euro, and the Chinese currency. Euro jumped more than 0.6% to 1.1678 on the news before reversing gains and settling below 1.1650.
Levels to watch, in the short term, we should focus on Yesterday’s high/low 1.1575/1.1678
The torrid week for sterling continues. Having flirted with 1.33 against the USD on Monday morning yesterday’s disappointing retail sales figures saw it bounce off mid 1.29 instead. All in all the pound has lost nearly 2.5% of its value against the USD whilst it has also finally broken out of its narrow trading range against the Euro.
World Cup spending on alcohol and BBQ food couldn’t offset the drop in spending elsewhere and once again the headline figures has contracted for a third time this year as retailers flocked away from traditional storefronts with the good weather tempting people outside. Any gains that sterling made against the Euro in March and April have slowly eroded with GBP/EUR hitting 19 week lows. Similarly GBP/USD has hit fresh 10 month lows.
What does this mean moving forward, and is there any reprieve for the pound? Well, with a Bank of England interest rate decision just around the corner (August 2nd) the market was pricing in around an 83% chance of a hike at the start of the week but this could be thrown up in the air. The only hope for sterling bulls and Bank of England interest rate hawks is that private consumption only plays a small part in the UK’s GDP figures and it has always been a volatile figure to forecast.
The Australian Dollar opens this morning marginally lower than yesterdays’ open as commodity currencies underperformed in overnight trading. It was a wild ride for the Aussie, which initially saw very positive employment figures drive up its value to 0.7441, only for the American trading session to unwind those gains and then some. Changing hands this morning at 0.7357, the Aussie looks to tread water to close out the working week.
The big headline of the day was, of course, the 50.9k jobs that were added to the Australian economy. The news soundly beat all analyst expectations and saw the Australia Dollar appreciate significantly to 0.7441. From there it was a day to forget with the industrial metal prices reflecting slowing growth concerns in China. Copper fell 1.5%, taking its declines since the start of June to 17%. Zinc, Nickel and Lead prices also slid in the decidedly bearish market. Compounding, the commodity concerns was the softness of the Chinese Yuan which hit a new low for the year. Overall, the Aussie fell over 1.5% from its high at 0.7441.
Looking forward, the Aussie is set to enjoy a quiet domestic calendar to close out the week, a welcome environment considering the recent trading. Off-shore, risk-events are relatively limited with attention mainly focused on the G20 summit kicking off today in Buenos Aires.
The New Zealand Dollar could not sustain movements above the 68 US cent handle, opening at 0.6795 yesterday morning as US Dollar strength continued its momentum. The US Dollar index (DXY) reached new highs overnight after a robust Philly Fed Manufacturing print and United States unemployment claims, causing the NZD/USD cross to fall steadily back to intraday lows of 0.6715.
A sharp spike higher though for the Kiwi occurred during the North American session as President Donald Trump in an interview with CNBC said that a stronger dollar “puts us at a disadvantage” and is currently unhappy with the current Federal Reserve monetary policy tightening.
The Kiwi rebounded to 0.6760 following Trump's comments before drifting lower on open this morning to 0.6745. With only Visitor arrival numbers released domestically this morning, markets will look towards G20 meetings in Buenos Aires this weekend for further stance on simmering trade tensions.
- USD/CAD: 1.3072 - 1.3157 ▼
- EUR/USD: 1.1626 - 1.1715 ▲
- GBP/USD: 1.2995 - 1.3084 ▲
- AUD/USD: 0.7318 - 0.7413 ▲
- NZD/USD: 0.6720 - 0.6799 ▲