Home Daily Commentaries The US dollar trades sideways heading into tonight’s State of the Union Address from President Trump

The US dollar trades sideways heading into tonight’s State of the Union Address from President Trump

Daily Currency Update

The USD index ground higher throughout Monday’s session, touching a high of 95.92 and shrugging off weaker-than-expected U.S. data. Factory Orders fell 0.6% amid lower demand for machinery. The Greenback strength has been put down to last week’s strong job numbers, which reaffirm the economy remains on a solid footing.

The US 10-year treasury yield rose from 2.68% to 2.72%, and the US 2-year yield rose three basis points to 2.54%. Futures markets continued to price little chance of any further Fed rate hikes in this cycle.

In other news, Gold has slipped for the second day in a row down to $1316.40. Despite the slide of the past two days, gold was still in firm $1,300 territory, with enough resilience to make new 2019 highs thanks to the Federal Reserve's promise to be patient with rate hikes, say some analysts. All eyes will be on President Donald Trump’s State of the Union Address, scheduled for 9pm Eastern Time tonight.

Key Movers

The Canadian Dollar edged lower through trade on Monday, following oil prices lower and succumbing to broader USD strength. Having touched three-month highs on Friday, the Loonie retraced gains as oil prices fell amid concerns of a more general global slowdown, driven by softness across US factory orders. Cured Oil fell almost one and a half percent through trade on Monday, while the USD found haven support amid expectations labor market strength will continue to drive domestic growth, pushing the USD higher against major counterparts.

Despite Monday’s sell-off, the CAD remains the year's top performer when compared with the USD. Corrections in US monetary policy expectations and a near 30% appreciation in oil prices since mid-December is driving demand for the commodity-led unit. As long as oil prices remain supported and the gap in US and BoC monetary policy is maintained, then we expect the CAD will hold onto gains through the short term.

With little of note on the domestic docket today we looked to Friday's labor market data for broader macroeconomic direction, with interim influences driven by fluctuating oil prices and global appetite for risk.

On a slow news day, the Euro moved to the rhythm of the Greenback, trading within a tight range, albeit, slightly lower than yesterday’s start. Opening this morning at 1.1435, the Euro looks to maintain its position ahead of eurozone PMI data due out later tonight.

Global foreign exchange markets had little to digest overnight with China on holiday and a slow economic calendar. Nevertheless, the United States Dollar did enjoy broad-based support, finding its feet and appreciating marginally across the board. The Euro was no exception to this, conceding ground to the worlds reserve currency, albeit modestly.

Tuesday is set to be a slightly more exciting day for the Euro with PMI data set for release across the eurozone. The United States is also set to release a critical ISM PMI reading.

The Great British Pound enjoyed mixed fortunes through trade on Monday, closing marginally below open, having enjoyed a brief rally above 1.31. Sterling tracked sideways for much of the day before reports British customs will waive checks on goods imported from the EU as part of a 3-month amnesty and bid to limit backlogs should include the UK and Europe split without a divorce deal in place. The report alleviates investors’ concerns surrounding the cost and impact of disruptions caused by a chaotic and messy no deal exit.

Brexit remains the primary driving force behind broader Sterling direction. The rally enjoyed throughout January is evidence of a more extensive spread of optimism, and expectations a deal will be reached. As we move close to the March 29 deadline however, the likelihood of a disorderly exit increases. All our focus over the coming weeks will be on crucial votes within UK parliament. On February 13, PM May will attempt to obtain approval on a revised Brexit plan. Should this fail, parliament will vote again on next steps and the possible extension of Article 50.

Having met selling pressures on moves approaching 1.31 we anticipate sterling could drift back toward 1.29 in the lead up to and wake of the BOE monetary policy decision Thursday. Investors are re-pricing expectations and anticipate the BOE will leave rates on hold as policymakers look to Brexit outcomes before issuing definitive forward guidance.

The Australian Dollar remained under pressure throughout Monday's trading, gravitating towards the 72c handle against the worlds reserve currency. The AUD was initially targeted after the release of weaker-than-expected building approvals data. The number of building permits issued fell for the third consecutive month in December, testimony to the weak outlook for the domestic housing market. Permits declined 8.4% m/m following a 9.8% contraction in November. Economists have predicted a 2% increase. ANZ Job Advertisements came in at minus 1.7%. December’s figures was also revised lower to minus 0.7%. The pair traded between a low of 0.7211 and a high of 0.7253

Markets were focused on today's Retail Sales, Trade Balance, and the RBA. The Reserve Bank of Australia’s monetary policy meeting saw no surprise as it was widely expected the RBA would keep the cash rate steady. Weakening economic data has led analysts to believe the RBA would likely keep the monetary policy accommodative going forward.

It was all quiet on the domestic front to start the week, as China starts their week-long New Year celebrations. With liquidity light, so were movements. The only news of note was the increase of 5% for the month in building consents, which measure the number of new building approvals issued.

Opening at 0.6890 vs. the Greenback, the New Zealand Dollar peaked at 0.6904, failing to build any momentum back above the 69 US cent handle. It declined to intraday lows of 0.6970 and maintained its tight trading range till open this morning.

The New Zealand Dollar opens this morning at 0.6883.

Expected Ranges

  • USD/CAD: 1.3095 - 1.3157 ▲
  • EUR/USD: 1.1400 - 1.1475 ▲
  • GBP/USD: 1.2960 - 1.3050 ▼
  • AUD/USD: 0.7193 - 0.7264 ▼
  • NZD/USD: 0.6871 - 0.6905 ▼