Home Daily Commentaries The US dollar is acting as a haven amid less optimistic global economic growth expectations

The US dollar is acting as a haven amid less optimistic global economic growth expectations

Daily Currency Update

The US dollar is acting as a haven this morning, rising 0.10 percent, and ignoring the lower growth expectations of the US economy. The International Monetary Fund (IMF) issued its World Economic Outlook on Monday, and the optimism that was in the air in 2018 has given way to a more inescapable sense of gloom. The global economy is projected by many economists to slow in 2019 to closer to 2 percent annual growth.

From now on, global growth will depend on critical decisions by different players in the global economy, including in particular U.S. President Donald Trump and Chinese President Xi Jinping.

Given that there was a U.S. holiday yesterday, market participants are keeping their eyes solely on U.S. and China talks, as they attempt to resolve U.S. complaints that China competes unfairly. China has been defiant, but its slowing growth numbers are putting pressure on Mr. Xi to compromise.

Key Movers

A gloomy market sentiment overnight is pushing the Canadian dollar lower after the International Monetary Fund (IMF) issued its World Economic Outlook on Monday. In this environment, buying safe-haven currencies (such as the Japanese Yen, Swiss Franc or US dollar) and selling riskier assets (such as the Aussie dollar or Kiwi dollar) rule the market. The USD/CAD increased (weaker Loonie) 0.34 percent to 1.3334 this morning compared to yesterday's closing rate, but it outperformed the Australian dollar and Kiwi dollar.

The IMF left its global growth forecast unchanged from their October update, but it downgraded Euro-zone growth. They blamed the reductions on a slowdown in Germany due to new automobile fuel emission standards, and sovereign and financial risks in Italy.

On the release side, the Loonie was further undermined when the wholesale sales and manufacturing sales data came in weaker than expected this morning.

It's a quiet start to the week for the Eurozone, with little economic data due until Thursday’s monthly batch of PMI numbers, and the European Central Bank’s interest rate decision and press conference. Markets will be hoping for an uptick in all the major PMIs after last month’s poor showing. No change in policy from the ECB is almost guaranteed. Estimations on when the bank will finally hike rates mostly straddle H2 2019 and H1 2020. The EUR/USD pair is trading at 1.1342 this morning, a 0.18 percent decrease.

The UK Prime Minister, Theresa May, presented her revised Brexit withdrawal agreement plan to parliament yesterday, a week after the first proposal got voted down by a record margin. To all observers, Plan B looked pretty much exactly the same as Plan A, as May hammered home her ongoing mantra that she would look for further concessions regarding the Irish border from the EU. MPs should get behind her and avoid a no-deal scenario, which she continues to leave on the table as negotiating leverage. The GBP/USD pair is trading higher this morning at 1.2920 and a 0.20 percent increase.

The AUD/USD pair has fallen away since the start of the week, as concerns over the state of the Chinese economy continue to build following its worst annual showing since 1990. Official data confirmed the Chinese economy expanded at 6.6 percent in 2018, with the rate of expansion for the fourth quarter slowing to an annualized 6.4 percent. The official figures are considered only a guideline, with most analysts thinking the real level of GDP is much lower, maybe just half the official print. The AUD/USD pair looks like it is heading back towards the 0.7100 handle as market participants continue the week in a “risk off” mode.

The New Zealand Prime Minister, Jacinda Ardern, is on a tour of Europe. This included a visit to 10 Downing St. yesterday, where she complemented Theresa May on her “resilience.” Ardern is now off to Davos to meet other delegates, which will likely make headlines in the absence of anything market moving on the domestic front. The NZD/USD trades at 0.6723 with a 0.10 percent decrease.

Expected Ranges

  • USD/CAD: 1.3250 - 1.3350 ▲
  • EUR/USD: 1.1325 - 1.1375 ▼
  • GBP/USD: 1.2875 - 1.3000 ▲
  • AUD/USD: 0.7100 - 0.7162 ▼
  • NZD/USD: 0.6700 - 0.6750 ▼