Home Daily Commentaries The US dollar weakness is pricing less aggressive Fed rate hikes in 2019

The US dollar weakness is pricing less aggressive Fed rate hikes in 2019

Daily Currency Update

The US dollar index traded softer yesterday and it fell to 96.20 in the overnight session. It is trading at 96.41 at the time of this writing representing a 0.17 percent fall compared with yesterday’s close. A major risk for the US dollar in 2019 is the Fed abandoning its policy of raising interest rates or becoming much less aggressive with Fed rate hikes in 2019.

The weak US dollar price action is following disappointing consumer confidence data which came out at the lowest level in 5 months. The December consumer confidence index came in at 128.1, down from 136.4 in the prior month. Market consensus was looking for a slight pullback to 133.5.

On the positive side, the initial jobless claims for the week ending on December 22nd came in at 216k; little changed from the 217k during the prior week. The claims have normalized to historically low levels recently suggesting strength in the labor market.

Key Movers

The Loonie continued to suffer at the hands of weak barrel prices in yesterday’s session. The USD/CAD pair touched 1.3660, a new 19-month high or a new low for the Loonie of 0.7320 against the Greenback.

The price of crude WTI after initially falling towards the mid 44s has bounced back and it is fluctuating at around 45 dollars, despite data showing rising stockpiles as well as record shale production. This is keeping oil markets in-and-around the lowest levels of the year.

The EUR/USD pair extended its weekly advance up to 1.1473 during the overnight session amid a return of appetite for riskier assets. Most indexes in Asia were up and there were substantial gains in the European ones. The German consumer price index rose less than expected in December. It came in at 0.1 percent while the forecast was 0.3 percent (month to month). The CPI year to year number came in at 1.7 percent versus the read of 1.9 percent.

The EUR/USD pair is trading 0.3 percent higher at 1.1463, but it was unable to sustain gains at around 1.1470, probably because Italy’s problems are still fresh in market participants’ minds, such as Italy’s 133% debt-to-GDP ratio, one of the highest in major developed economies.

The GBP/USD pair is trading at 1.2684, 0.32 percent higher, despite pressures mounting on British Prime Minister Theresa May to shorten MPs’ holidays to negotiate her Brexit deal ahead of the mid-January vote showdown.

Yesterday, May shortened her Cabinet ministers’ holiday break by five days to prepare for a possible ‘no-deal’ Brexit situation which has caused some alarm amongst market participants.

The AUD/USD pair climbs 0.5 percent to 0.7063 after dropping to 0.7017 last night. The pair has traded within a range of 0.7017 and 0.7077 from last Friday, following three weeks of losses.

The NZD/USD pair inched higher against the US Dollar on Monday. The technical bias is bearish, but the bounce was due to worries of the extended US government shutdown.

Expected Ranges

  • USD/CAD: 1.3595 - 1.3665 ▲
  • EUR/USD: 1.1404 - 1.1475 ▲
  • GBP/USD: 1.2618 - 1.2708 ▲
  • AUD/USD: 0.7022 - 0.7069 ▲
  • NZD/USD: 0.6705 - 0.6757 ▲