The Greenback’s Biggest Event Risk is Q3 GDP Friday.
Tuesday 23 October, 2018
Daily Currency UpdateThe United States Dollar appreciated slightly in overnight trading, taking advantage of the weaker risk-sentiment prevailing in global markets. The US Dollar Index (DXY) opens this morning at 95.90, down -10% from the Asian open even as commodity currencies bear the brunt of the risk-averse environment.
Monday was a subdued day on the economic calendar with little to excite markets, but some off-shore headlines moved the USD. China kicked things off early in the piece with officials offering some confidence boosting statements and policy measures. President Xi also added to the dialogue, vowing to provide unwavering support for the private sector and personal income tax cuts starting in 2019. Chinese stock markets surged on the news which saw the CNY bid upwards against the Greenback. The USD also benefitted from the turmoil currently roiling European markets as investors steered clear of the Sterling and Euro. Political concerns in Italy and the UK drove risk-aversion and saw the greenback strengthen against their cross-Atlantic rivals.
Moving into Tuesday, the United States Dollar enjoys another quiet day on the economic calendar with little to excite. Pundits will look to the headlines for further direction. The next driver domestically for the dollar will be this Fridays Q3 GDP reading from the States which is expected to show a moderation from Q2’s annualized 4.2% growth. Economists expect the data to show the purple patch the US economy has been enjoying may be coming to an end with a fall to 3.3% growth penciled in.
Key MoversMonday saw the loonie finish little changed against its US counterpart, anchored around Friday’s five-week low of 1.3132. The USD/CAD traded in a tight range between 1.3075 and 1.3126 as crude oil futures were flat, Iraq has now surpassed Canada as the world 4th largest oil producer. The loonie continues to be weighed down by a combination of European political uncertainty, global equity market declines and escalations in the US-China trade dispute.
As we discussed yesterday, last week’s weak macro data out of the domestic economy places further impetus on this week’s monetary policy decision by the Bank of Canada. We explained that this is the critical risk event this week for the loonie with traders eager to see how the central bank will respond to the weaker than expected releases. Markets are currently pricing a 25bp rate hike at a 90% probability with the accompanying press conference and the introduction of the first Monetary Policy Report likely to be of crucial interest to markets.
We’ve seen our USD/CAD technical levels lift slightly overnight, with downside supports now evident at 1.3071 and topside resistance levels seen around the 1.3157.
The Euro is weaker this morning when valued against the U.S. Dollar as risk appetite dominated the first half of the day. Meanwhile, concerns around Italy eased after PM Giuseppe Conte pledge to avoid an Italexit wasn’t enough to spark a rally.
Looking ahead today and the macroeconomic calendar will be quite light with the only release the German Producer Price Index (PPI) for September and EU Consumer Confidence for October. On Wednesday we will see the version of EU Purchasing Managers' Index (PMI).
From a technical perspective, the EUR/USD pair is currently trading at 1.1464. We continue to expect support to hold on moves approaching 1.1430 while now any upward push will likely meet resistance around 1.1490.
The Great British Pound fell through trade on Monday touching two and a half week lows amid growing Brexit fears. The ongoing Irish border dispute could be the sticking point that waylays Brexit negotiations and could Force Prime Minister May out of 10 Downing Street. The sterling fell through 1.30 for the first time in almost three weeks, extending losses to touch intraday lows at 1.2960.
Markets were mainly reacting to reports across Sunday papers that UK lawmakers were preparing to challenge May’s leadership. The increasing political instability has dampened recent optimism and raised the likelihood of a hard Brexit. Even if the UK can reach an agreement with EU negotiators, there are concerns any plan will be rejected at home and with time fast running out we expect markets will remain jittery and exposed to ongoing headline risk.
Attention today remain with affixed to Brexit discussion and political brinkmanship as primary drivers of direction.
The Australian Dollar opens this morning in a familiar position after trading in ranges as expected for the past twenty-four hours. Beginning the week at 0.7120 against the greenback, the Aussie was driven lower by instability in the Wentworth election as the Government looks to lose its one-seat minority. Initial moves were lower and broke through the 71 US cent handle to an intraday low of 0.7090.
RBA Deputy Governor Guy Debelle in his speech yesterday remarked that he has an “open mind” at what the level of full employment is for the economy with the number approximately 4%. Unemployment fell to 5% last week from 5.3% as the AUD/USD responded positively by a boost in full-time jobs. The AUD/USD eventually saw losses paired back into 0.7120 at the close of the Asian session before political uncertainty in Europe saw a risk-off environment with movements back into the Greenback and the Aussie falling to lows of 0.7080 on the close of play.
From a technical perspective, the AUD/USD pair is currently trading at 0.7082. We expect support to hold on moves lower to 0.7050 with any fall through this to the physiological support levels of 70 US cents. Any upward push will likely meet short-term resistance again at 71 US cent handle.
The New Zealand dollar slipped marginally lower through trade on Monday as local investors enjoyed an extended weekend. Commodity currencies underperformed as demand for risk waned after US equities dipped into negative territory. While the NZD found some support following upbeat commentary from Chinese officials and new looser PBOC monetary policy settings moves were modest in the face of a stronger greenback across the board.
Having met resistance at 0.6610, the Kiwi slipped back through 0.6550 to touch intraday lows at 0.6545. With little critical macroeconomic themes on hand to drive direction today, risk sentiment will again guide investors with expectations the dollar will be mainly range bound holding between 0.6435 and 0.6610.
- USD/CAD: 1.3071 - 1.3157 ▲
- EUR/USD: 1.1439 - 1.1489 ▼
- GBP/USD: 1.2937 - 1.3043 ▼
- AUD/USD: 0.7055 - 0.7089 ▼
- NZD/USD: 0.6535 - 0.6568 ▼