The CPI numbers do not help the US dollar regain strength
Tuesday 12 March, 2019
Daily Currency UpdateThe US dollar index is increasing 0.15 percent this morning amid uncertainty ahead of key Brexit votes. This drove the Sterling higher yesterday and lower this morning. The volatility seen in the British Pound reminds us of the volatility seen in the Brexit referendum in June 2016. The policy uncertainty that has clouded the investment horizon, such as Brexit, US-China trade, and gridlock in Washington, is set to clear, likely allowing for less uncertainty and better expectations once important economic agents have a clear path.
However, Chinese officials remain cautious of President Trump’s request for Xi Jinping to fly to the US to finalize the deal. They fear Xi may be disconcerted by a fluctuating Trump or forced into a last-minute deal adjustment. The White House spokeswoman, Sarah Huckabee Sanders, said that a date still hasn’t been set for the meeting. However, US and Chinese trade representatives held further talks over important issues in a phone call overnight with a Chinese news agency, reporting that arrangements were agreed to for the next stage of negotiations.
On the release side, the consumer price index year to year for February came in at 1.5 percent versus the 1.6 percent expected, and the CPI ex food and energy came in at 0.1 percent versus the 0.2 percent expected. These numbers imply that there is no need from the Fed to increase rates in the short term, so the US dollar is giving up some gains this morning.
Key MoversThe Loonie is trading slightly higher this morning, due to the bounce of around 1 percent in the barrel of crude oil WTI. The Loonie was helped positively in yesterday’s session by equity markets. The prospects of a revised Brexit deal helped overall risk sentiment: TSX increased 0.69 percent, Dow Jones increased 0.79 percent, S&P 500 increased 1.47 percent and Nasdaq increased 2.02 percent.
Technically speaking, the USD/CAD pair still on an uptrend, however, crude oil is trading at a resistance, which if broken, might push the Loonie higher against the US dollar. For now, it is a wait and see set up. Important supports and resistances are 1.3365, 1.3328 and 1.3425, 1.3490 respectively.
Yesterday’s highlight for the Euro came from the usually political neutral ECB, as council member Benoit Couere got his teeth stuck into Italy. Couere announced yesterday that Italy was the only Eurozone country that is not growing, which is factually correct, but will not help the ECB’s image towards Italy’s populists. The EUR/USD pair trades at 1.1260 with a 0.14 percent increase this morning.
At the bottom of the ninth, it finally appears that Theresa May could have secured the concessions from the EU that she was promising. At the start of yesterday, it looked like the Prime Minister had wasted the last few weeks and the only thing she’d achieved was running down the clock. However, after a quick jaunt across to Strasbourg the Prime Minister has returned with “legally binding” changes to the Irish backstop, which could not “become permanent”.
Likewise, this morning Geoffrey Cox has warned that the UK could still remain trapped in the backstop, despite changes secured by Theresa May from Brussels last night. Mrs. May urged MPs to back her Brexit deal, however, one Cabinet source told the BBC the backstop changes are, "…probably not enough to get it over the line".
The British Pound versus the US dollar has started to have extreme volatility this morning. It fell from 1.3243 to 1.3005 less than 2 hours after the news, and despite gross domestic product results, which came in at 0.5 percent versus the 0.2 percent expected. It's all about Brexit today.
p hidden="" class="break">
The Aussie dollar managed to edge out some small gains and managed to recover following the release of house financing data and NAB’s business survey. The business survey showed confidence falling while profits also dropped, but there are a couple of large options propping up the currency around the USD$ 0.7000 handle. The AUD/USD pair trades flat at 0.7067 this morning.
As mentioned yesterday, there are no major economic releases from the New Zealand dollar this week, so similar to the Euro, it will take its orders from elsewhere. For the Kiwi, this will most likely be from China, but given the fact that US – China talks have taken a temporary break, we don’t expect too many updates. The NZD/USD pair trades at 0.6841, an increase of 0.19 percent this morning.
- USD/CAD: 1.3340 - 1.3440 ▼
- EUR/USD: 1.1265 - 1.1298 ▲
- GBP/USD: 1.2900 - 1.3400 ▲
- AUD/USD: 0.7060 - 0.7100 ▼
- NZD/USD: 0.6840 - 0.6890 ▼