A pause from US dollar appreciation following good manufacturing numbers in the US
Wednesday 6 March, 2019
Daily Currency UpdateThe US dollar index extended its rally to a sixth day after the ISM services came in at 59.7 versus the 56.2 expected and with new orders at 13 years high. Furthermore, new home sales came in at 3.7 percent versus the expected -8.7 percent, beating expectations. However, the US dollar appreciation was muted after a gloomy day for global markets; S&P 500 futures fell with European shares, while Asian stocks were steady as a rally in Shanghai was offset by losses in Tokyo in yesterday’s trading session. In the overnight Asian session, the US dollar was also helped by the Aussie dollar, which collapsed after the nation's growth slowed. The lack of movement in different capital markets is a bit surprising considering the positive news out of China’s NPC, which suggested more easing measures than the market expected.
Regarding the US-China deal, Trump is growing increasingly concerned that the lack of an agreement will drag down stocks, so Trump is apparently pressuring US negotiators to reach a trade agreement with China very soon. On the flip side, former Chinese finance minister Lou Jiwei said that China won’t make significant concessions to reach an accord and described some US demands as “just nitpicking.” This morning, the OECD cut its global growth forecast, citing trade tensions.
At the time of this writing, the US dollar index is trading at 96.92; however, it left the strong uptrend that started last week. It touched a low of 95.82 on February 28th and then reached an intraday high of 97.00 in yesterday’s overnight trading, right at the same moment when the EUR/USD touched an intraday low of 1.1286. At this point, given that the US dollar is outside of the uptrend, technically speaking, the US dollar is in a “wait and see” setup.
Key MoversThe Loonie is at its weakest level since January 4th as we await the Bank of Canada (BoC) meeting at 10:00 am EST later today. Just by looking at the price action of the USD/CAD, it is obvious that sophisticated market participants expect a less hawkish statement than in January and with little hikes priced for this year and the next. In general, we should have a similar “wait and see” mode from the BoC. It seems that the market, in general, is pricing that the BoC will not move its interest rate later. Any surprise might push the USD/CAD either way.
The other driver of Loonie’s price action was the crude oil WTI, which was heading lower yesterday, weighed down by signs of a rise in US crude stockpiles and a stronger US dollar. US crude inventories pressured crude prices in the early London trading session after the American Petroleum Institute, an industry group released weekly inventory data yesterday, showing a 7.3 million-barrel build in US crude stockpiles last week. The API report showed a surprising growth in inventories, which is bearish for crude oil. The official inventory data from the US Energy Information Administration is expected later Wednesday at 10:30 am, 30 minutes after the BoC announcement.
Technically speaking, the USD/CAD tested the last line in the sand, the resistance level of 1.3389, which was the highest level on January 7th, right before the collapse of the USD/CAD (Loonie appreciation). It is trading at 1.3379 at the time of this writing, and it probably won't have a significant movement until 10:00 am EST, at the time of the BoC announcement; however, the next support and resistance levels for today are 1.3351 and 1.3402 respectively.
Tomorrow’s European Central Bank interest rate decision at 7:45 am EST looms ever nearer with no change in policy all but guaranteed, but some are expecting confirmation of a reintroduction of its cheap bank loans program. Tomorrow could be too soon for an announcement as, by the end of the month, we could have resolved Brexit and the China/US trade dispute, which will help confidence in the bloc no end leading the bank to shelve the plan. The EUR/USD pair trades sideways around 1.1305.
Brexit uncertainty continues to dominate the British Pound moves with a fall in its value seen after a breakthrough in negotiations failed to materialize yesterday in Brussels. Possibly a little optimistically, some were expecting Attorney General Geoffrey Cox to confirm a breakthrough in Brexit negotiations regarding the Irish border text however these hopes were dashed, and the Sterling slipped as a result. The GBP/USD had been pushing back towards the 1.3200 handle but pared these gains and retraced towards the 1.3100 handle; it is trading at 1.3145 at the time of this writing.
Comments from Bank of England Governor, Mark Carney, helped recover some lost ground as testimony before members of the House of Lords showed that he saw interest rates rising quicker than markets expecting should a Brexit deal be done in yesterday trading session. Yesterday also saw the release of the monthly Services PMI from the UK, which unsurprisingly highlighted the economy has ground to a halt, predicting growth of just 0.1 percent for the first quarter as business decisions are delayed until Brexit is sorted.
The Aussie dollar has had a miserable night as the latest quarterly GDP figures fell well short of expectations. Growth for the fourth quarter of 2018 was expected to show 0.5 percent; however, the data came in at 0.2 percent sending the local buck tumbling. Earlier on, the Reserve Bank of Australia Governor Philip Lowe said it was difficult to imagine rates rising this year with Macquarie bank joining Westpac in expecting two cuts by year-end. Tonight’s next evidence of the health of the economy comes by way of retail sales numbers for January with 0.3 percent growth predicted. The AUD/USD had slipped to 0.7024 in the overnight session, but at the time of this writing it is trading at 0.7037.
As is so often the case the Aussies' woes dragged the Kiwi lower with the NZD/USD falling to around 0.6753 from 0.6800 after last night’s poor data from its neighbor across the Tasman Sea. A breakthrough is needed in the China-USD trade dispute to restore confidence in the global economy and help aid the antipodeans. The NZD/USD is trading at 0.6778 at the time of this writing.
- USD/CAD: 1.3280 - 1.3445 ▲
- EUR/USD: 1.1275 - 1.1345 ▼
- GBP/USD: 1.3100 - 1.3165 ▼
- AUD/USD: 0.7000 - 0.7065 ▼
- NZD/USD: 0.6735 - 0.6800 ▼