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The US dollar is continues to climb to 2018 higher against the euro.

By OFX

The US Dollar, measured by the Bloomberg Dollar Index, printed new YTD highs on a relatively quiet session impacted by a holiday in the UK and continued pressure on Emerging Markets currencies and the Euro. The USD outperformed most of its G-10 peers, closing 0.2% stronger at its highest level for 2018. The trading session was briefly interrupted by President Donald Trump’s tweet that he’ll announce whether the US stays in the Iran nuclear deal on Tuesday (Wednesday early morning for APAC).

Some mixed commentary came from Fed representatives, with Robert Kaplan (Fed Dallas President) indicating he still sees only three rate hikes this year and that they should continue removing accommodation in a gradual way. In relation to inflation, he mentioned: “We don’t want to run persistently above or below 2%. “ US yields were little changed, but we will see a significant supply of Treasuries this week as quarterly refunding auctions begin Tuesday with a $30 billion sale of 3-year notes.

Currency markets are fully focused on the Iran nuclear deal at the moment, with Trump’s decision due at some point today, the likelihood being that the U.S. will withdraw from the agreement, despite pressure from European governments to stay in. The oil market is seemingly pricing in a withdrawal, with WTI crude trading above 70.00. Either way, Trump decides to go, we should see some form of volatility not only in oil prices but the dollar index and commodity-linked currencies at some point this afternoon. 

The US Dollars moves to a one month high against the Canadian dollar, and the current trend channel of the last two weeks has been broken. It’s not as much a weaker loonie as it is a stronger greenback. The Loonie remains well supported against the euro and the pound. The USD is finding strength as uncertainties in the market rise. In commodities, gold is down 10 dollars on the day and currently trades at to 1309, and WTI trades lower at 69.75 off of a high yesterday of 70.83. The cause of the retreat in pricing is the announcement to come later today from President Trump on the Iran Nuclear Agreement sign back in 2015 by the Obama administration and an agreement the current administration calls the “worst deal ever.” With unknown repercussions in the region if the multinational accord is scrapped market participants favor the greenback.

Canadian Housing Start for April was a miss this morning at 214K expectation was for 218k vs. previous of 225k. The data has only amplified the market overlooking a Canadian dollar controlled by Canadian fundamentals until this Friday’s job numbers. Canadian employment numbers are expected at 20k vs. previous of 32.3K; the unemployment rate is expected to remain at 5.8%.

The euro has traded in a fairly narrow range over the last 24 hours, no doubt a result of London is out of action on Monday. It continues to trade sub 1.20 vs. the US dollar, with the greenback gaining good ground against the single currency through most of last week. In fact, EUR/USD traded to a new 2018 low yesterday, not helped by the release of weaker than expected German factory orders on Monday as well as a stronger dollar, of course.

In other news, negotiations between political parties in Italy have failed again in forming a coalition government, meaning that a snap election this year is becoming increasingly probable, which in turn likely put the euro under renewed selling pressure.

The data docket in Europe is looking a bit bare this week. ECB President Draghi will be speaking on Friday, and so trading will likely be dominated by international rather than domestic events, the Iran deal is a prime example.

It was a public holiday in the UK yesterday, but despite this, the pound was one of the better performing major currencies. GBP/USD has recovered after breaking below the 200 day moving average for the first time since April 2017. Having been under continued selling pressure last week amid growing Brexit worries, political concerns, weak economic data and increasing expectations that the Bank of England will leave interest rates on hold at Thursday’s MPC meeting.

The Bank of England meeting will be the primary focus for GBP market participants this week. While it’s now almost a foregone conclusion that interest rates will remain on hold, investors will be paying close attention for any signs that the bank plans to raise rates as soon as August, or this year at least. Any hint towards August will likely be a good excuse for a bit of profit taking on those shorter pound positions that built up throughout the week last week, so good for the pound.

The Australian Dollar offered little throughout trade on Monday failing to make any significant gains yet held on above psychological supports at 0.75 in the face of broader USD advances. The greenback touched fresh year to date highs when measured against a basket of major counterparts driven largely by another marked correction in the Euro as investors continue to extend bets U.S interest rates will increase at a faster pace. A stronger than anticipated NAB business confidence report helped bolster support for the beleaguered AUD and despite touching intraday lows at 0.7494 rebounded to open this morning buying 0.7511 US cents.

The rapid AUD sell-off has steadied somewhat through the back end of last week as investors correct fair value ranges and expectations, reducing near-term risks for our commodity driven unit. Short term moves between 0.7430 and 0.7630 appear reasonable and while we expect investors to sell into significant upturn support at 0.75 and 0.7430 should hold while 10-year U.S Treasury yields remain below 3%.

Attentions now turn to domestic retail sales data for direction through Tuesday. A strong read above 0.5% could prompt some hope that an uptick in consumer spending will help bolster price pressure and force an uptick in inflation that has otherwise remained flat and outside the RBA’s target band.

With little on the domestic agenda yesterday, the New Zealand Dollar traded sideways over the past twenty-four hours. Opening the week at 0.7015, We saw a familiar pattern of intraday highs at 0.7040 before dips just below psychological support levels at US 70 cents in overnight markets.

Inflation expectations for the quarter are released this morning and will be one of the essential leading factors for when we see the RBNZ move on its first interest rate hike since July 2014. The RBNZ has long warned of needing a pickup in inflation levels and wage growth before there is any change to its current neutral bias. In the last quarterly report released by the RBNZ in a survey of expectations, we saw one-year inflation to remain flat while two years ahead had a 0.09 percentage point increase to 2.11%.

All eyes will be across the Tasman this evening where the Annual Budget release takes place as we have seen the AUD/NZD cross rally over the past week by 1.5% to 1.0710. The New Zealand Dollar opens this morning once again at 0.7015 against its American counterpart.