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USD has a steady finish to the week

By OFX

It was a mixed session for the dollar yesterday. US unemployment claims data printed weaker than expected, but only slightly, and then, as mentioned above, Philly Fed Manufacturing Index was a beat. USD/JPY rallied before New York came online helped by rising US Treasury yields, which supported a broader move higher in the dollar. However, this move was tempered later on as a war of words on US/China trade reared its head again with Trump calling China “very spoiled on trade.”

The USD reached a new five-month high versus its pairs, rising 0.2% in yesterday’s session. The dollar started the session slightly weaker, but the Philadelphia Fed Business Outlook for May came much stronger than expected (34.4 versus 21 expected and versus 23.2 last month). The healthy number pushed US Yields higher again, with the US 10 YR Treasury reaching 3.115% (highest level since 2011) helping the USD recover for the session.

US yields are putting some pressure on the stock market, which ended the session slightly lower, also thanks to Trump wariness about the outcome of US-China trade talks. The war of words between U.S. and China may also intensify, but market participants believe action will be minimal. Other than that, it looks set to be a steady finish to the week.

Unlike other currencies over the last 24 hours or so, we’ve seen a fair bit of volatility in the Canadian dollar. It weakened overnight with USD/CAD pushing convincingly through the 1.28 level as the U.S. trade czar Lighthizer declared that NAFTA countries were “nowhere near close to a deal” and that there were “gaping differences” on the likes of agriculture, dairy, and autos.

Consumer Price and Retail Sales figures were released at 8:30. The CPI figure was flat at 0.1%, and Core Retail Sales fell to -0.2% from 0.0% previous. The Canadian dollar managed to remain range bound from 1.2779 to 1.2830 ahead of the number but has dropped significantly as trader’s price out any possibility of a rate hike form the BOC at the end of this month with the inflation gauge flat. Primary resistance remains at 1.2886 level.

Heading into a Canadian long weekend to celebrate Victoria Day. Oil and Gold remain flat from there North American closing prices from yesterday at $71.50 and $1287.00 respectively. As oil price goes up so should the Baker Hughes Rig-count which is reported at 1 pm today the count currently sits at 1045.

The euro opens weaker this morning. It fell below 1.18 vs. the USD yesterday morning as the greenback generally pushed higher through the day, and the pair begins the NA session below the 1.18 figure this morning. Stronger than expected producer inflation data has failed to lift the single currency this morning too.

EUR/GBP is also weaker this morning, and while there’s little by way of data to influence the pair over the next 12 hours or so, rhetoric, media reports and rumors on a UK/EU customs union may drive some volatility in the market. A lack of liquidity may also fuel a bit of action.

GBP strengthened early on Thursday following a press report that the UK was set to stay in the customs union with the EU, but as far as GBP currency pairs were concerned, it was a relatively quiet day yesterday. GBP/USD hovered close to 1.35, slipping below the big figure following the release of the stronger than expected Philly Fed Manufacturing Index yesterday afternoon.

It’s unchanged this morning, and with the calendar looking light on data again, it could be another rare but steady day for the pound.

In what was a quiet night for markets overnight, the AUD slipped against the USD from 0.7540 to briefly touch lows of 0.7498 before rebounding into this morning open where the local currency is currently buying 0.7511 US cents. The move lower overnight was largely driven by an uptick in US treasuries which were supported by a stronger than expected manufacturing Survey out of the Philadelphia Fed. With markets currently pricing a 100% chance of a US FED hike in June, we hope the pair to come under continued pressure as the yield differentials along the curve continue to move in favor of the world’s base currency.

The Aussie put in a much firmer performance against the major crosses opening higher against all major crosses bar the pound which is finding support on reports of positive developments in Brexit negotiations. This is indicative of markets seemingly overlooking yesterdays mixed AU employment report which saw unemployment edging higher to 5.6% from 5.5% with the headline number coming in at 22.6K (vs 20K expected).

With today’s calendar being particularly low key with no significant releases that will be of interest to markets, we expect the AUD to mainly trade sideways against the majors with any moves to continue to be highly sensitive to deviations in yield differentials.

Like most other commodity currencies the NZD came under selling pressure for most of the day yesterday. NZD/USD fell to a low of .6870 before bouncing back overnight. It opens above .69 this morning, but only, and looks a little vulnerable as risk sentiment worsens amid the intensifying war of words on trade between China and the U.S.