The US dollar falls despite higher than expected numbers in the producer price index
Tuesday 11 December, 2018
Daily Currency UpdateIt was a positive session for the US dollar yesterday. It appreciated 0.5 percent, acting as a reserve currency due to lousy news elsewhere, including Brexit, weak China data, lower oil prices, and lingering issues such as the arrest of the daughter of Huawei’s founder.
However, this morning, the US dollar index is falling slightly - 0.02 percent - despite an improved mood in global markets. The U.S. and China started the latest round of trade talks involving Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer, and Chinese Vice Premier Liu He. The three senior officials discussed Chinese purchases of agricultural products and changes to critical Chinese economic policies.
On the release side, the producer price index ex-food and energy month to month (November) came in at 0.3 percent, while the expected number was 0.1. The PPI year to year came in at 2.7 percent when the read was at 2.5 percent. These numbers will likely give us good insight into consumer price index numbers, which will be published tomorrow.
Key MoversThe Loonie moved lower, acting inversely correlated to a strong US dollar index in yesterday’s session. The USD/CAD pair moved 0.5 percent higher (weak Loonie) in the middle of a “risk off” environment in the FX market. This morning, the story is different. The Canadian currency is getting support from higher oil and also from a robust comeback of global equities. The USD/CAD is falling 0.18 percent (strong Loonie).
On the release front, housing starts for November came in at 215.9 k when the expected number was at 198k, and building permits month to month came in at -0.2 percent when the expected number was -0.3 percent. The market entirely ignored those numbers, focusing only on global jitters and the US dollar as a haven currency.
As of this writing, the market sentiment is still negative for the Loonie; the BoC might be on the sidelines after it's policy meeting last week and it is expected to stand pat again in January. However, the USD/CAD pair might find a direction sooner, with the Fed expected to scale back its “gradual rate hike” policy to just one hike next year. Therefore, it will be a matter of which bank is expected to raise rates faster to have a better clue of the direction of the USD/CAD.
Eurozone investor confidence dropped negatively for the first time seen since December 2014 in a move that doesn’t come as a surprise to many given the uncertainty across Europe and where we currently sit in the economic cycle. Divisions within Italy are also beginning to emerge between Conte, Tria, Salvini and Di Maio, as the first two look to persuade the others that the budget deficit target should be lowered. Elsewhere in France, Emmanuel Macron has promised to increase the minimum wage 7 percent in 2019. This move, alongside the u-turn on fuel tax rises, could place France within the scopes of the European Commission regarding it's budget deficit. The EUR/USD pair is moving slightly higher this morning, trading at 1.1365.
There are perhaps not enough superlatives or metaphors to describe the events currently unfolding within the halls of Westminster or Downing Street, but an apt one maybe is that the ‘left-hand does not know what the right hand is doing.’ This was perfectly illustrated early on Monday when a No. 10 spokesperson confirmed that the Meaningful Vote would go ahead today as Michael Gove and everyone assumed. What quickly transpired was that May shelved the vote and took the option to avoid a hefty defeat. There was always the anticipation this week that Sterling volatility would be the central theme, but yesterday demonstrates once again the importance of considering every Brexit scenario. The Pound has dropped to 18-month lows against the US Dollar and 2.5-month lows against the Euro. Moving forward, Theresa May is now off back to Brussels to try and renegotiate the Irish backstop agreement, but the EU has been adamant that this is the best Brexit deal on offer. Other scenarios to keep an eye out for include a no-confidence vote in the government or a leadership challenge. The only thing that is indeed true of Brexit is that it is not binary whatsoever, it is not a choice between two options, and it is not like either one of two scenarios will unfold.
In amongst all of this, Monday also saw the latest release of the UK’s GDP figures, which showed flat growth for August and September before hitting the dizzying heights of 0.1 percent for October – hardly inspiring. The GBP/USD pair is moving 0.41 percent higher this morning, trading at 1.2610.
Business conditions and business confidence have dropped off recently in Australia, as reiterated by the NAB’s latest survey; however, the Aussie dollar largely shrugged off this release. The AUD/USD pair is moving 0.44 percent higher this morning, trading at 0.7222.
The Kiwi tends to strengthen in periods of heightened uncertainty, and yesterday was no different. The New Zealand dollar finished yesterday on the front foot against the Pound, mainly due to the news out of Westminster. The NZD/USD pair is trading 0.53 higher this morning at 0.6905.
- USD/CAD: 1.3315 - 1.3367 ▼
- EUR/USD: 1.1322 - 1.1406 ▼
- GBP/USD: 1.2500 - 1.2800 ▲
- AUD/USD: 0.7200 - 0.7244 ▲
- NZD/USD: 0.6870 - 0.6915 ▲