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Global trade will be at the forefront of G7 leaders meeting this weekend

By OFX

US weekly initial jobless claims counted 1000 below previous and expected at 222K while continuing jobless claims were higher at 1.741M vs. prior of 1.72M. With limited economic data for the balance of the week the greenback will be subject to the ebb and flows of the market.

The outcome of the G7 meeting in Quebec remains in question heading into this weekend. Can talking heads come to a definitive settlement on trade and tariffs without turn the global market into turmoil and an all-out trade war? Market participants are asking this question and if the answer is murky, expect some volatility in the currency market. President Trump will be at the G7 meeting Friday and over the weekend before heading to Singapore for his meeting with North Korean leader Kim Jong Un.

Other notable risks to the economy, be it domestic or international is the fact central bankers are removing economic accommodations providing uncertainty to domestic and global growth, with uncertainty comes volatility.

The Canadian dollars most significant event risk today will be Bank of Canada’s Governor Stephen Poloz press conference at 11:15 am. Poloz will be taking questions on the central bank's findings in its Financial Systems Review. The most significant concerns for the BOC? We quote. “High household indebtedness and housing market imbalances remain the most important vulnerabilities.”

Commodities are on the rise with WTI crude prices up over a dollar at 65.72 a barrel. Gold climbs to 1298 an ounce. The Canadian dollar remains at its first resistance against the greenback of 1.2965 at writing.

Furthermore, CAD traders will be looking to Canadian employment data, due tomorrow.

EUR/USD is flying this morning having just broken through the 1.18 big figure. The dollar is weaker, yes, but there’s also a growing sense amongst market participants that the ECB will signal they are close to ending their QE program at next week’s “live” meeting. The ECB’s Peter Praet, in particular, sounded a lot more hawkish in a speech in which he said that the convergence of inflation towards their aim has been improving.

German Factory Orders has just been released this morning and printed a lot weaker than expected, but it’s been entirely ignored by traders who seem more intent on selling the dollar against the risk backdrop. Italian Retail Sales and European Revised GDP are released later on this morning.

It was a mixed session for cable yesterday. The pair came under selling pressure after US data printed stronger than expected. The Brexit headlines didn’t help sterling’s cause either, and it’s a surprise the most recent headlines aren’t having a more negative impact on the pound this morning; Brexit Secretary David Davis is opposed to Theresa May’s plan for a temporary customs arrangement. He is concerned that without an end date the arrangement could continue indefinitely. The PM will be meeting with the senior minister today to try and resolve the ongoing tensions, so watch this space.

GBP/USD is higher again this morning, mostly a result of a weakening greenback. Risk sentiment remains positive as evidenced by the performance of equity markets overnight in Asia, prompting this mild move out of the USD. However, there are a few worries about this weekend’s G7 meeting and whether that might result in further heated debate, perhaps even proposed action, on tariffs and Iran.

There isn’t any major economic data on the way from the UK today. MPC member Ramsden is due to speak later on in the day, but Brexit headlines, the war of words on tariffs and more geopolitics will likely dominate.

Against a backdrop of increased risk appetite, the Aussie dollar’s great week continued as it outperformed its G10 peers on Wednesday. Lasering in on the Aussie dollar, for now, yesterday was stronger than expected Q1 GDP print yesterday ensured the local currency extended its Monday and Tuesday gains to finish up 0.6% on the day. The read was mostly in line with the RBA’s projected growth outlook with real GDP rising 1% q/q and GDP growth of 3.1% providing the most robust read since Q2 2016. A buoyant labor market and employment conditions seem driving the improvements however with underlying wage growth still subdued; the RBA remains cautious regarding its monetary policy outlook.

The upward momentum was carried into the London and US sessions overnight as the AUD/USD raced to fresh one-month highs of 0.7677 as markets embraced risk and commodity prices firmed. The pair is up 100 pips from Fridays close, representing its best week since January when compared to its US counterpart. Australia’s busy data week is set to continue this morning with April trade balance reports due out at 11:30 which will be closely watched by traders looking for further reassurance from the local economy.

New technical levels to watch on the upside are our June 6 and May 5 highs of 0.7700 and 0.7725 respectively with supports to the downside now seen at levels closer to 0.7605

The New Zealand dollar has traded rangebound for the last few days now, hovering around the 0.7030 level against the USD with second-tier local macroeconomic data yesterday failing to surprise markets and continuing to point towards a soft upcoming Q1 GDP read. In what has been a quiet week, the NZD opens lower against the 0.5% the AUD, 0.3% lower against the EUR and up 0.4% against the JPY as the yen continues to struggle against a backdrop of rising global rates and increased risk appetite.

NZD/USD did manage to reach monthly highs of 0.7060 towards the back end of the Sydney session but was unable to preserve these gains with the pair retreating to levels around 0.7030. We open this morning at 0.7036 and with the economic calendar unusually light to finish off the week, we expect global risk appetite to remain a key driver in the near term.

On the technical front, key support is at the 0.6880 level with any upside moves appearing to reach resistance at the 0.7060 handle.