The US dollar continues bouncing despite the Fed’s 360 degree change last week
Thursday 1 January, 1970
Daily Currency UpdateThe US dollar index had a flat price movement following concerns over a global downturn in yesterday’s trading session. Market participants are still digesting the Fed news of putting rate hikes on hold with some expectations of an ease on monetary policy if economic forecasts continue deteriorating. Another issue keeping market participants on the sidelines this week is the bizarre yield curve, or the difference between the three month and ten-year yield that turned upside down last Friday, two days after the FOMC delivered one of the most dovish outcomes in recent years. Its release has helped fuel the market's recessionary concerns. The US dollar has also stayed flat due to yesterdays comments from Evans, a FOMC member, who said that a jump from 2.25 percent to 2.5 percent, “…is not a big concern for me at the moment.” He emphasized that the headline inflation has not come close to 2 percent during the economic recovery. He also mentioned that the Fed should consider rate hikes only if, “…growth runs close to its potential and inflation builds momentum.” This morning, the US dollar index was rising 0.2 percent, but at the time of this writing, it is falling after the release of the Conference Board Consumer Confidence Index, which declined in March after increasing in February. The Index now stands at 124.1, down from 131.4 in February.
Key MoversThe Loonie had a rally yesterday after two days of falling. The USD/CAD closed lower at the 1.3400 handle (stronger Loonie), and continued its rally in the Asian and European session, testing the lowest intraday level of 1.3380. The Loonie was helped by crude oil, which has rebounded. Spiraling tensions in Venezuela exposed further curtailment of crude oil supplies of large producers. Despite that, the significant expected US exports don’t provide a positive outlook for crude oil. On that note, oil trader Paul Vega, who heads the office of global commodities trader Trafigura Group, said that there is more crude oil being moved than America’s refineries can consume, and the primary way to go for trading houses like his is exporting it. The crude oil WTI crossed the 60 dollars a barrel handle for few minutes and came back down (below 60) this morning. This is despite the fact that the important crude oil market participants know that the flow of crude might continue growing over the next few years, and that OPEC might face challenges such as keeping oil prices at soaring levels. And, let's not forget that Trump is a potent weapon against crude oil prices staying high. Technically speaking, the USD/CAD rate is not able to make higher highs in the daily chart (stronger Loonie). The last top was at 1.3467 on March 7th, but the previous high seen yesterday was 1.3444. This situation is telling us that the USD/CAD pair is probably running out of gas to the upside for now. Critical support and resistance levels for today are 1.3340 and 1.3443 respectively.
The Euro rose on Monday after a better than expected business confidence survey from Germany helped lift the mood and relieve some concerns around economic growth. Germany’s IFO Institute said its business climate index rose to 99.6, beating a consensus forecast of 98.5 and ending six consecutive months of decline. The EUR/USD broke through 1.1300 handle. This morning however, the EUR/USD is trading lower at 1.1294, a 0.15 percent decrease.
It was a quiet economic calendar for the Sterling yesterday, but as has been the case for the past two years, we can always rely on our Friend (or foe) Brexit to deliver something to talk about. After a lengthy parliamentary debate during the day, the house of commons broke for the all-important vote. This vote was to allow parliament to wrestle back control of the Brexit process from Government. The House of Commons voted 329 to 302 in favor of taking power away from PM May, which now opens the door to a range of withdrawal options. These include considerations on a second referendum, staying in the customs union, or canceling Brexit all together. A series of 'indicative votes' to this end will take place on Wednesday. The Prime minister stated after last night’s vote there is no guarantee she will abide by their wish, this places a question mark over where we go from here. May is still trying to table MV3 (Meaningful Vote 3), but even she realizes this is a pointless exercise as the likelihood of it passing are incredibly slim. What we do know is May has to table MV3 at some point this week, or we seek to go with a longer extension. After yesterday’s results, the Sterling did move higher breaking through the 1.3200 handle.
The Aussie has accelerated overnight staying above the 0.7100 handle against the US dollar, shrugging aside broad-based risk off sentiments. The ever-increasing expectations for a Fed rate cut will be the only way the Aussie can find support. The outlook on the Aussie is still bearish, with the RBA still concerned about the housing bubble.
Overnight, we saw the release of the monthly Trade balance figures. Goods exports rose 8.3 percent, goods imports rose 13 percent, and the monthly trade balance was a surplus of $12 million. Milk powder, butter and cheese led the export rise, up $263 million (24 percent). The Kiwi dollar is trading at 0.6910 this morning. Tonight, we have the RBNZ rate announcement where no change is expected. The rate statement that follows will be one to watch. Given the global economic slowdown, we wonder if the RBNZ will give us an insight into how their rate cycle is looking.
- USD/CAD: 1.3340 - 1.3443 ▼
- EUR/USD: 1.1246 - 1.1320 ▲
- GBP/USD: 1.3190 - 1.3322 ▲
- AUD/USD: 0.7105 - 0.7145 ▲
- NZD/USD: 0.6825 - 0.6950 ▲