Home Daily Commentaries The US dollar continues to hit new lows following Powell’s comments

The US dollar continues to hit new lows following Powell’s comments

Daily Currency Update

The US dollar index continues to weaken, falling 0.38 and pushing risk assets after an excellent US job report last Friday and some supportive comments from Federal Reserve Chairman Jerome Powell. "We will be patient as we watch to see how the economy evolves,” said Powell. Powell let the market know that the Fed wasn’t on a fixed path to push its benchmark interest rate higher. Fed officials addressed two rate increases for this year, but Powell said that the path could change if recent market volatility causes the economy to slow more than officials anticipate.

The first day of negotiations between the US and China on settling their trade conflict seem to have got off to a good start. Chinese Vice Premier Liu He unexpectedly attended what was meant to be a discussion between lower-ranking officials.

On a different note, no further meetings between White House officials and Congress are outlined after talks over the weekend did not produce a breakthrough to finish the partial government shutdown.

Key Movers

The Loonie is having another rally with the USD/CAD falling to an almost one-month low; it is trading at 1.3341 at the time of this writing. The main reason (you guessed it) - oil prices. Oil prices jumped during overnight trading, building on five straight sessions of gains that have seen crude's prices rise by more than 9 percent. The price of crude is following the positive sentiment from last week, when oil closed up Friday on the back of a strong U.S. jobs report and hopes for a resolution to the U.S.-China trade dispute.

At this point, the USD/CAD has a significant technical support in the mid 1.3300s after the quick fall from a high on January 2. Additionally, West Texas Intermediate crude is a few cents away from the critical psychological level of 50 dollars a barrel. Over the next few days, if OPEC and the allied non-OPEC countries keep their agreements, the oil market is likely to be re-balanced during at least the first half year.

Friday's big data from the Eurozone was a slightly under par inflation print with the overall reading coming in at 1.6 percent from a downward revised 1.9 percent. The core reading held steady at 1 percent, around half the target level. There was little reaction from the shared currency however with markets primarily concerned with the timing of when European Central Bank chief, Mario Draghi, will look to raise interest rates. The consensus at the moment is sometime in Q3 and this slightly weak data hasn’t done anything to change this prediction. The EUR/USD trades at 1.1454, a 0.50 increase mainly due to the US dollar’s weakness.

Brexit returns today to continue its domination of the UK political agenda. With just 12 weeks left until the UK leaves the European Union, Prime Minister Theresa May is under pressure to get her deal through parliament with a vote still expected next week. However, it is looking like a defeat for the PM. If the defeat happens, then speaker John Bercow will likely allow time for more debate and another vote on the matter given the gravity of the situation.

The back and forth ahead of the vote is set to dominate the Pound trading this week. At this moment the GBP/USD pair is trading at 1.2761, 0.32 percent higher.

The AUD/USD pair has staged a recovery over the past two trading sessions, picking up to 0.7141 at present as the dollar sell-off benefited the Aussie. Tonight, trade balance numbers for November will be released from down under with a surplus of AUD 2.2b expected. As always, developments regarding trade between the US and China will have the most impact on the Aussie’s value in the short term. US officials are set to begin discussions in Beijing today aimed at helping to bring an end to the dispute.

It’s a quiet week ahead from New Zealand with little data of note to distract the FX markets. Risk on trade on the back of Jay Powell’s dovish comments has boosted the Kiwi over the past couple of trading days. Any positive news emanating from the US/China trade talks will add further support to the Kiwi. The NZD/USD trades around 0.6750 this morning.

Expected Ranges

  • USD/CAD: 1.3330 - 1.3375 ▼
  • EUR/USD: 1.1440 - 1.1514 ▲
  • GBP/USD: 1.2727 - 1.2780 ▲
  • AUD/USD: 0.7120 - 0.7150 ▲
  • NZD/USD: 0.6738 - 0.6770 ▲