Home Daily Commentaries The US dollar continues to weaken after several Fed officials become less optimistic

The US dollar continues to weaken after several Fed officials become less optimistic

Daily Currency Update

The US dollar trades flat this morning after U.S. Vice President Mike Pence said on Saturday that the U.S. isn’t in a rush to end the trade war and won’t change course until China changes its ways. However, China’s President Xi Jinping said that implementing tariffs and breaking up supply chains is “short-sighted.”

According to a different strategist, the upcoming G20 meeting between Xi and Trump will provide more certainty in the FX market, but a suspension of further tariffs in exchange for more negotiations is the most likely scenario. In general, the US dollar has been trending lower in the last week after several Fed officials had a less hawkish tone.

Key Movers

The Loonie started a rally last Thursday from 1.3250 to 1.3127. A stronger crude price and a “risk on” market sentiment helped the Loonie. According to Reuters, Goldman Sachs expects a significant fall in the US dollar next year as U.S. economic growth slows to be more in line with the global average. According to the investment bank, the Canadian Dollar is likely to rise steadily against its U.S. rival over the coming quarters, adding that the Bank of Canada will continue to raise interest rates in the year ahead and that it might move at a faster pace than the Fed.

The USD/CAD this morning is trading slightly higher at 1.3165, after a 1 percent fall (stronger Loonie) last week.

The Euro had a strong performance last week. After having initially touched fresh yearly lows of 1.1216 verse the US dollar last Monday, it has bounced strongly and ended the week at 1.1416. This morning, it is trading at 1.1430. The Euro received a boost from hopes that Italy’s Prime Minister Giuseppe Conte is willing to work with the European Union over the country’s 2019 budget. Over the weekend, Italy’s Deputy Premier also said that the country would stay with its reform planned in the 2019 Budget.

On the data front, EU inflation numbers came out without any revisions. The year to year CPI change remained at 2.2 percent, while the core gauge stayed at 1.1 percent. The ECB expects core inflation to rise significantly over the next few quarters, according to Mario Draghi on Friday.

The Pound steadied on Friday and increased to 0.18 percent today in the morning, printing at an intraday high of 1.2884, with less harmful Brexit related headlines circling.

The Pound was the worst performing major currency last week, but it was showing some early signs of a fightback overnight. Investors seemingly brush aside the pessimistic weekend newspaper headlines, including one such headline from The Sun that there are currently 42 conservative MP letters to push for a vote of no-confidence in the PM, with six more letters required to trigger any vote.

AUD/USD touched 2½ month highs on Friday at 0.7338. This on the back of dovish Fed comments. Vice chairman of the Federal Reserve, Richard Clarida, told CNBC on Friday that interest rates were near neutral, but indicated that a December rate hike is still possible. The news sent the Greenback tumbling, leading speculators to think that the Fed would pause sooner than expected.

AUD/USD is trading at 0.7293 this morning. Market participants will now be looking to the RBA’s Monetary Policy Meeting Minutes tonight. Fed member John Williams is speaking at an event in New York today too, and after what we saw on Friday, we may get some reaction in AUD/USD.

It was another strong day for the Kiwi on Friday as we saw the local unit close the week a touch under 0.6883, a level we have not seen since June. It came primarily as a result of a fall in the value of the US dollar, with the Kiwi’s gains against the crosses being rather modest.

Expected Ranges

  • USD/CAD: 1.3161 - 1.3208 ▲
  • EUR/USD: 1.1363 - 1.1446 ▲
  • GBP/USD: 1.2800 - 1.2950 ▲
  • AUD/USD: 0.7260 - 0.7325 ▼
  • NZD/USD: 0.6798 - 0.6870 ▼