Greenback’s Biggest Event Risk this Week is Thursday’s Consumer Price Index Figures.
Daily Currency UpdateThe greenback looked offshore for direction and was slightly higher against the euro for most of the day on Monday. China's central bank has cut the level of cash that banks must hold as reserves, aimed at lowering financing costs.
Equity markets were mixed; the Dow rose 0.2%, while the S&P500 was flat. Tech stocks underperformed, with the Nasdaq down 0.7%. Gold came under selling pressure dropping under $1200 mark.
It’s a quiet day on the economic calendar today with no significant economic releases. We will have Chicago Fed President Evans speaking at 10 am, New York Fed President John Williams follows this later this evening at an event in Bali.
Key MoversThe Canadian Dollar slipped lower through trade on Monday. It underperformed in what was primarily a quiet start to the week as most North American investors enjoyed an extended weekend in observance of Columbus Day and Canadian Thanksgiving celebrations. With little to drive domestic data the CAD mirrored moves in crude oil prices.
Attention remains on equities, broader risk sentiment and ongoing oil price fluctuations for short-term direction. Canada saw Housing Starts data out for September which missed forecasts of 210.0K printing lower at 188.7K. The next risk event for the loonie will be at 2 pm today when BoC Deputy Governor Wilkins Speaks, Wilkins is known to drop clues on future monetary policy. The Bank of Canada next rate decision is on October 24th.
Another reasonably quiet session to start the week as holidays across many countries meant liquidity remained thin in the markets. The Euro drifted off from the open of 1.1525 as sentiment waned within the Eurozone as concerns remain for Italy’s budget policies following disagreements between the Italian government and the EU Union overnight. Yields on 10-year bonds in Italy rose to 4-year highs making it more expensive to borrow money.
EUR/USD pulled off 0.4% after seeing an overnight low of 1.1460 following a decline in Germany Industrial Production for August and Sentix Investor confidence declining from 12.0 to 11.4.
On the Agenda this evening is the release of German Trade Balance as the EUR/USD opens this morning at 1.1490.
The pound shed some of its early gains on Monday. The catalyst for the volatility in the currency is in the headlines with the Brexit negotiations continuing to have a profound effect on the currency.
Sterling then surpassed last week’s high later in the morning, hitting 1.3132. Initially, the optimism for the EU offering a strong free-trade agreement kept the pound well supported. However, the luster for the offer was quickly unwound as the greenback strengthened and comments from PM May’s spokesman dampened the likelihood of a deal. Further diminishing market hopes was a report that UK Brexit Secretary Raab won’t be heading to Brussels this week ahead of the October EU summit next week. Instead, he is due to appear in the Commons today and which point he’ll deliver an update on Brexit negotiations. The feeling now is that a proposal and agreement on the Irish border/backstop is a little way off, which is undermining the pound right now. Overall, Brexit remains at a critical juncture with far-reaching impacts on financial markets.
Today was another quiet day on the economic calendar front for the UK with little to drive momentum. Attention remains affixed to the on-going Brexit negotiations for direction.
The Australian dollar edged higher through trade on Monday bouncing off multi-year lows and pushing back toward 0.71 despite a broad-based souring in global risk sentiment. Having suffered heavy losses throughout last week investors were keenly focused on China’s return from a week-long holiday period, and the Yuan’s reaction to PBOC moves to ease monetary policy and stimulate growth. The PBOC elected to reduce the reserve requirement ratio for banks in a bid to encourage lending at the weekend adding increased downward pressure on the CNY and an ongoing expectation of further AUD weakness.
Traditionally you would expect the AUD, as a proxy to the Yuan, to depreciate in the wake of market pressures however it seems yesterday’s AUD outperformance stemmed from a broader need to take stock following last week’s moves. There is a sense investor were getting ahead of yesterday’s depreciation, firming short-term supports and adding resistance to further falls toward psychological support handles.
Broader direction will continue to be driven by broader risk trends as US bond markets and equities return, bringing with them volatility and the possibility of renewed downward pressure. We will be keenly attuned to moves above 0.71 and extensions in losses below last week’s low at 0.7040 as keen markers of direction.
The kiwi retreated to its lowest level in over two years on Monday against the greenback, touching 0.6423 early in the Asian session and failing to make any recovery. Trading volume was thin on the day due to the US holiday meaning the NZD/USD traded within a tight band oscillating around the 0.6440 level. The Kiwi also gained 0.4% against the EUR on Italy concerns and traded sideways against its rival across the pond.
There is also the risk-off element to unpack which continues to weigh on commodities and by association, commodities correlated currencies such as the NZD, CAD, and AUD. Between the rising conflicts between China and the US on the trade front and continued uncertainty on the situation in Italy, traders remain cautious on the Kiwi.
It’s shaping up to be a quiet day for the NZD with no macroeconomic data sets due out of the domestic economy on Tuesday with the kiwi likely to continue to take its cues from the relative strength of the greenback as well as global risk sentiment. NZD/USD technical support can be seen at the daily low of 0.6420 before 0.6390 while on the flipside key resistances are visible at the 0.6455 and psychological 0.6500 handle.
- USD/CAD: 1.2952 - 1.3001 ▲
- EUR/USD: 1.1432 - 1.1503 ▼
- GBP/USD: 1.3033 - 1.3106 ▼
- AUD/USD: 0.7054 - 0.7094 ▼
- NZD/USD: 0.6459 - 0.6486 ▼