Home Daily Commentaries The US dollar struggles to advance amid the US government shutdown

The US dollar struggles to advance amid the US government shutdown

Daily Currency Update

The US dollar declines 0.27 percent after a partial government shutdown that exacerbated the risk-off mood. Top White House officials failed to strike a deal to give President Trump his $5bn worth of wall funding. More than 400,000 employees are set to work without pay while more than 350,000 were forced to take unpaid leave. The Trump administration warned that the partial government shutdown could stretch into January on Sunday.

President Donald Trump considered firing Fed Chairman Jerome Powell as he became more dissatisfied with the central bank decision to hike rates. Additionally, the government appeared to be in damage control mode when Treasury Secretary Steven Mnuchin quoted Trump as saying, “I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”

US equity futures recovered slightly throughout the overnight trading session after Treasury Secretary Steven Mnuchin is set to meet top bank executives to discuss liquidity.

Key Movers

Despite the US dollar’s weakness, the Loonie was not the best performer of the major currencies, primarily because of the weaker than expected consumer price index and also because of the initial spike of the US dollar immediately after a more hawkish Fed message in the US yesterday. The crude prices are not helping the Loonie either.

However, the Loonie is helped by a weaker Greenback this morning. Fundamentally speaking, subdued inflation in Canada was countered by the Fed in the US when they revised down their core PCE inflation forecasts to 2.0 percent from 2019 - 2021, which means that they also don’t see an overshoot of the target. This is helping the Canadian dollar compared with the US dollar.

At the time of this writing, the USD/CAD is trading at an important support of 1.3450, representing a fall of only 0.21 percent (stronger Loonie). On the release side, wholesale trade sales month to month (October) came in at 1 percent versus 0.4 a percent read; this is also helping the Loonie marginally.

Italy has finally struck a budget agreement and deal with the European Commission, as both parties settled on a deficit target of 2 percent of GDP, down from 2.4 percent. At issue and still unsolved is the fact that Italy’s debt pile is €2.1 trillion or 131 percent of its GDP. This is second in the Eurozone only behind Greece, and if growth does not reach the anticipated 1 percent next year, this debt pile will only increase. For the time being though, the agreement has removed a significant headwind for investors as the Euro looks to end the year on the front foot.

The initial fall of the EUR/USD immediately after the Fed announcement in the US, from 1.1431 to 1.1364, lasted only one hour. After that, the Greenback weakness pushed the EUR/USD to an intraday high of 1.1486, a 43-day new high in the overnight trading session. The EUR/USD is trading at 1.1454 at the time of this writing.

The UK CPI came in at 2.3 percent as expected, its lowest level since March 2017. The move lower was driven by the recent sharp fall in oil prices. The GBP/USD is in a rally mode trading at 1.2682 after reaching an intraday high of 1.2707. The Pound is helped by the US dollar weakness this morning.

Brexit still dictates the performance of the Pound and with deadline day less than 100 days away, it now seems a perfect opportunity for Parliament to go into recess and MPs to take a 20 odd daybreak.

The Aussie dollar wasn’t helped by the local jobs data initially. For the Reserve Bank of Australia, the strength of the labor market is crucial but as things stand there is a risk for the Aussie dollar that interest rates could be cut in 2019 rather than raised. However, the AUD/USD is climbing higher helped by the US dollar weakness, trading at 0.7129. It reached a low of 0.7086 by the close of yesterday’s trading session.

The Kiwi obtained help from the US dollar weakness; however, it is trading only 0.1 percent higher, and trading at 0.6772 at the time of this writing, because the New Zealand GDP for Q3 came in less than half expected at 0.3 percent. Not a good session for the New Zealand dollar.

Expected Ranges

  • USD/CAD: 1.3432 - 1.3502 ▼
  • EUR/USD: 1.1408 - 1.1503 ▲
  • GBP/USD: 1.2626 - 1.2701 ▲
  • AUD/USD: 0.7076 - 0.7186 ▲
  • NZD/USD: 0.6719 - 0.6829 ▲