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Greenback Strength Slows Against Its G10 Trading Peers

By OFX

The Greenback enjoyed a welcome lackluster day for once this week remaining relatively range bound against most cross rates. With a slow day in the headlines and mostly benign speeches from the central banks, the USD managed to hold its gains against most currencies and oscillate within a tight range. The Greenback did eke out a few gains against commodity currencies however and did post a marginal increase against a basket of currencies (DXY). The DXY opens this morning at a healthy 95.12.

Wednesday’s significant event was the central banking forum in Sintra overnight whereby Fed Chair Powell, ECB President Draghi, BOJ Governor Kuroda and RBA Governor Lowe all spoke on a variety of topics. While there was little insight to be had on interest rate forecasts for their respective jurisdictions, all speakers pointed to the growing trade tensions with the United States as a key threat to their respective economies. Ominously, Powell noted ‘changes in trade policy could cause us to have to question the outlook.’ The market, however, mostly shrugged off the warnings and were buoyed by Powell’s positive comments about the US economy.

Moving into Thursday, the United States Dollar has a quiet domestic economic calendar to digest with traders looking off-shore for direction. New Zealand releases their GDP data this morning, and the Swiss have their Monetary Policy Assessment later in the day. Closing out Thursday, the UK turn to their official bank rate policy announcement for direction.

The Canadian dollar edged lower through trade on Wednesday making new 12 month lows and opening the door for a break below 0.75 U.S Cents. While moderating somewhat, the sell-off has persisted as trade tensions continue to plague broader market sentiments and risk aversion remains the primary directional driver. Concerns surrounding existing NAFTA policy and future trade relationships between the US and Canada are dampening demand for the loonie as investors look to shift remaining holdings and extend USD/CAD bullish bets. Having fallen more than 8% year to date and traders still holding a net short position since mid may there is scope for further USD gains and a move toward mid-2017 lows below 0.73.

Attentions now turn to crucial retail sales and inflation data Friday for macroeconomic guidance while broader sentiment is dominated by ongoing trade tiffs and the threat of an escalation into an all-out trade war.

The Euro struggled to break outside broader ranges on Wednesday bouncing between 1.1550 and 1.1600 when valued or compared against the USD dollar. Having tumbled in the wake of the ECB’s monetary policy announcement last Thursday the 19 nation combined unit has failed to gather upward severe momentum as risk aversion and a broader repositioning plague markets and investors sentiment.

The selloff of last week has somewhat moderated as investors panic surrounding burgeoning trade tensions eases marginally. Central Bank officials, despite citing trade tensions as a concern and spectra hanging over global growth do not expect it to change short-term monetary policy outcomes, perhaps adding some support to the beleaguered Euro. Touching intraday lows at 1.1549 the Euro steadied and bounced back toward intraday highs at 1.16 before correcting lower to open at 1.1573.

Attentions now turn to manufacturing and services data Friday as the key macroeconomic indicators driving direction into the weekly close while trade and tariffs will continue to steer broader sentiment, influencing broader directional flows Thursday.

It was a quiet start to the day yesterday as markets took a breath following the substantial risk of selling the day previously. The dollar remained broadly stable and GBP/USD settled around its seven month low. Investors were also a little cautious ahead of the House of Commons vote that afternoon; the Brexit bill passed through Parliament by 319 votes to 303 as Tory rebels were told they would be given a meaningful say in negotiations. It’s a huge relief to PM May who has since vowed to make the process of the UK’s withdrawal from the EU “smooth and orderly.”

It hasn’t done much to support the pound, however, with cable testing fresh lows this morning. Traders are now a little nervous ahead of today’s Bank of England monetary policy announcement, albeit it seems any dovish slant to the minutes and announcement are well and truly priced in. The expectation is for interest rates to be left on hold and for the bank to signal a wait and see approach. It, therefore, means the risk is to the upside for the pound. In other words, any surprises would likely be hawkish surprises and so confident for the pound. The most likely of these surprises (if there is such thing as a possible surprise!) is that the bank hint of a potential rate hike as early as August. Governor Carney is due to speak tonight at Mansion House too, so is the Chancellor, and so we may see some further movement in GBP/USD on the back of this.

A sense of calm has been restored across financial markets over the past 24 hours, a mood which has been well reflected in underlying currency moves. While the Australian dollar meandered between a low of 0.7369 and a high of 0.7408 versus its US Counterpart yesterday, the status quo has been well and truly thrown on its head this week, an abrupt and abrasive sell-off which has in most been driven by Donald Trumps dialed up trade threats against China. Acknowledging that rhetoric from the RBA has also played its role, markets are still only pricing in a 50 percent chance of an interest rate hike this year, with the struggles of the AUD more closely tied to the risk off events which have had significant consequences across the emerging market space.

In light of a stabilizing backdrop this morning, the Australian dollar currently swaps hands at a rate of 0.7367. In looking ahead as to what’s likely to drive direction today, the economic docket locally is void of any market-moving potential; hence sentiment is expected to play a prominent role as investors eye levels closer to the 74 US Cents mark.

The New Zealand dollar has resumed its downtrend in overnight trading, failing to sustain any rallies into the upside short-term resistance levels at the 69 US cent handle. Opening the domestic trade at 0.6890, we saw small moves higher to 0.6910 in the morning following the release of a surplus in current account figures of 180m for Q1 this year.

The Kiwi dipped lower in offshore markets as the US dollar continues to gather momentum off higher interest rate yields and trade tensions and the NZD/USD cross is now testing 2018 lows seen on May 16th this year of 0.6850. This morning we see the release of New Zealand GDP figures whereby forecasts are predicting a modest retreat from last quarters reading of 0.6% and a slowdown in the economy to 0.4-0.5%. A reading this low would show the slowest pace of annual growth in four years. The New Zealand Dollar opens this morning at 0.6872.