Home Daily Commentaries Worries in the equity and bond markets are pushing the US dollar higher

Worries in the equity and bond markets are pushing the US dollar higher

Daily Currency Update

The US dollar index is going to 96.46, increasing +0.30% this morning and it is influenced by the falling of international equity markets from Shanghai to London, including the U.S. equity futures led by anemic technology shares on Tuesday morning.

There is a noticeable shift in tone and a clear understanding of risks from Fed authorities, such as Jerome Powell, Richard Clarida, Robert Kaplan and Patrick Harker to an extent. Some significant threats to the capital market assumptions around the FOMC and the track to higher rates are appearing.

The bond market is also a concern for the markets in general, the treasury holdings of primary dealers are at a record high and are a danger sign because they show that underwriters are getting stuck with bonds that they can’t sell to money managers. On top of that, China has cut its holdings for four months in a row, underscoring the possibility that foreign investors are losing interest.

Key Movers

The USD/CAD started to move higher impacted by weak price action in the crude and negative performance of the global equity markets. In the back of this adverse sentiment, there is uncertainty about the results of the upcoming G20 meeting between Xi and Trump; the U.S. isn’t in a rush to end the trade war and won’t change course until China changes its ways.

There are no Canadian data releases on the schedule, but Carolyn Wilkins, Senior Deputy Governor of the Bank of Canada, will speak at the MaxBell Policy Luncheon on the monetary policy framework at noon later today

The Euro hit a fresh two-week high yesterday as selling pressure continued on the Greenback. A weaker than expected US NAHB housing market index print fueled a sell-off in U.S. stocks, weighing on the dollar, too. Meanwhile, the situation in Italy simmers away and continues to pose a risk to the single currency, this despite recent comments from the ECB’s Nowotny, who said this morning budget plan has been minimal.

Reports circulated yesterday that there were growing numbers of MPs ready to submit letters of no confidence in Theresa May, but despite this, GBP/USD held steady. It was only as she addressed the CBI conference later in the day that GBP/USD shed a quick 70-80 points, albeit she didn’t say anything we hadn’t already heard before.

There turned out to be good support at the 1.2800 handle, and it wasn’t long before Cable recovered, helped in part by a softening Greenback. The pair has held firm and traded a steady range overnight.

It’s another potentially big day for the Pound with BoE Governor Carney speaking, along with other MPC members, following the release of the central bank’s inflation report. The threat of a leadership challenge is still looming, too, and herein lies more significant potential for a negative GBP shock.

The AUD/USD pair has fallen from its two and a half month highs as it seems the US and China trade conflict looks a long way off being resolved. AUD/USD broke below psychological support at 0.7300 and touched a low of 0.7251 overnight. The scandalous Nissan headlines didn’t help Asian stocks and added to the unfavorable risk sentiment, weighing on the AUD, while the IMF said overnight that the balance of risks to Australia’s economy is “tilted to the downside.”

In other news, the RBA released its monetary policy minutes last night, but failed to surprise or have any impact on the Aussie dollar, despite being ever so slightly more hawkish than many market participants were expecting.

After the five months high of the Kiwi seen last Friday at 0.6884, it has retreated to an intraday low of 0.6816, as markets digested US vice president Mike Pence’s comments directed at Chinese President Xi at the Asia-Pacific economic cooperation summit. The comments dampened risk sentiment and weighted on both the NZD and the AUD. The downward slide came despite stronger than expected second-tier data releases; NZ PMI and PSI reads both bounced with the PMI rising to 53.5 in October from 51.9 in September and the PSI rising to 55.4 from 53.9.

Expected Ranges

  • USD/CAD: 1.3170 - 1.3230 ▲
  • EUR/USD: 1.1360 - 1.1460 ▼
  • GBP/USD: 1.2824 - 1.2950 ▲
  • AUD/USD: 0.7215 - 0.7300 ▼
  • NZD/USD: 0.6798 - 0.6870 ▼