Home Daily Commentaries The US dollar rises after a six-month high following better than expected retail sales

The US dollar rises after a six-month high following better than expected retail sales

Daily Currency Update

The US dollar index came in at 0.2 percent this morning while the expected number was 0.1 percent. This pushed the US dollar index 0.6 percent higher to fresh six-month highs this morning.

Furthermore, worries over the global economy remain in the global markets following disappointing economic data from China and the Eurozone, sending the US dollar higher in overnight trading and erasing all the losses the US dollar had during the week. On top of that, equity futures in North America are moving lower and performing as if everything depends on U.S.-China trade. Many economists expect the trade conflict to continue despite a 90-day tariff truce that Mr. Trump and his Chinese counterpart, Xi Jinping, reached in early December.

Key Movers

The USD/CAD had a tranquil day in yesterday’s session. It traded in a narrow range of 45 pips from 1.3338 to 1.3383, with the key piece of information being the new housing price index month to month and year to year, which came in with no surprise at 0 percent and 0.1 percent respectively.

For next week, the most critical information releases will be the consumer price index on Wednesday and the gross domestic product on Friday. A higher increase in the Canadian CPI number compared with its main counterpart, the US CPI, would influence a stronger Loonie and vice-versa. Last Wednesday, the American CPI (YoY) came in at 2.2 percent, which was the same as expected. For the Canadian economy, the previous CPI YoY came in at 2.4 percent (a month ago); however, the forecast is 2.2 percent for this Wednesday, which is the same as the US CPI. Fundamentally speaking, it would be interesting to see a surprise in the CPI in Canada this Wednesday because it would give us a better idea of where the USD/CAD is going.

This morning, the USD/CAD is trading at 1.3375, after going higher in overnight session and touching a high at the 1.3400 handle. There is no economic data today.

It’s been a painful 24 hours for the Euro with soft rhetoric from European Central Bank Chief Mario Draghi yesterday being followed by weak data from the bloc in the overnight session. The latest ECB interest rate decision saw no change in policy re: interest rates, which was as expected. We also saw confirmation of the end of its Quantitative Easing program this month, which had also been expected by the markets. The main area of focus was the press conference which saw a dovish tone cut by Draghi, where he highlighted a slowdown in output from the bloc and changed his language re: risks from being “broadly balanced” to being “tilted to the downside.”

EUR/USD is falling 0.70 percent to 1.1275. Extra downward pressure has been exerted with both French Manufacturing and the Services PMI dropping below 50 for the first time since Sept 2016 and June 2016, respectively. The services figure was particularly eye-catching as the 49.6 shown was expected to be 54.8, a huge miss.

The UK Prime Minister, Theresa May, traveled to Brussels yesterday trying to get some concessions from the EU, mainly the Irish backstop in an effort to salvage her Brexit deal. The Pound has slipped this morning as it appears that EU leaders are unwilling to give any ground legally on the matter and have issued little by way of verbal assurances that the arrangement will be temporary. The trip is starting to look a little like May’s trip to Salzburg in September, where the first incarnation of the so-called “Chequers plan” resulted in a stonewalling from EU leaders left the PM looking isolated.

We are now in a potentially dangerous time for the UK economy. May looks like she’s going to run down the clock to a no-deal in an effort to force her plan through parliament. EU leaders look like they aren’t willing to budge on the current proposal. And Brexiteers have dug their heels against any Customs Union relationship. If something/someone doesn’t give soon, then we could be looking at a chaotic, disorderly exit at the end of March, which will have a devastating impact on the Pound and the broader UK economy. GBP/USD, which had rallied to around 1.2680 yesterday, is now trading at 1.2541, which is almost 1 percent lower and it does not look to change unless we get some positive news from the EU today.

Risk off trade has hit the Aussie dollar hard overnight and this morning. The impact from Chinese industrial production has hit the local dollar with AUD/USD falling from 0.7247 to around 0.7153 at the time of this writing.

Like the Aussie dollar, the Kiwi has fallen on the soft China data. The NZD/USD dropped from around 0.6879 to 0.6778 at the time of this writing. Next week’s significant number from NZ is Wednesday night’s GDP figure with holders of the Kiwi hoping for a similar result to Q2s 1 percent growth.

Expected Ranges

  • USD/CAD: 1.3357 - 1.3405 ▲
  • EUR/USD: 1.1253 - 1.1306 ▼
  • GBP/USD: 1.2517 - 1.2666 ▼
  • AUD/USD: 0.7138 - 0.7180 ▼
  • NZD/USD: 0.6772 - 0.6825 ▼