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Greenback To Trade on Broader Market Sentiment as Fundamentals are Light

By OFX

The US Dollar index stalled overnight after reaching a peak, post the retail sales figures in the United States on Wednesday at 96.98. The DXY was down 0.12% overnight, after touching an intraday low of 96.32 though remains strong following a 5% gain in 2018.

President Donald Trump changed his tune yesterday after recently talking down the value of the local currency. Tweeting that “Money is pouring into our cherished DOLLAR like rarely before.” Market sentiment improved yesterday as equity markets saw gains across the board with the Dow rallying 1.6% as talks of negotiations to calm current trade wars between China and the United States.

The Philly Fed Manufacturing Index fell in August to its lowest reading in 21 months as director of real-time economics at Moody’s Analytics advised was due to rising trade tensions and tightening financial conditions weighing on sentiment. Despite the low reading, indicators remain positive as firms remain optimistic about the future of the local economy. U.S. Housing starts rose 0.9% to a seasonally adjusted rate of 1.1680 million units in July, along with building permits in line with expectations of 1.31M for July. Market expectations could expect a slowdown in the housing industry as interest rates start to rise. The calendar is light on today with the release of Prelim University of Michigan Consumer Sentiment & Inflation expectations this evening.

The Canadian dollar failed to recoup losses suffered through trade on Wednesday edging marginally lower still against the US dollar on Thursday. Having fallen below 0.76 US cents on the back of a decline in oil prices the loonie was treading water ahead of today’s CPI inflation print. Early indicators suggest a stable print that will afford the Bank of Canada the opportunity to maintain the current interest rate setting through September and into the end of the year. However last week’s strong labor market print leaves the door open to a possible upside surprise which could drive short-term support and an extension back through 0.7650 toward the top end of recent ranges.

Today’s CPI print was well above expectations and posted a 3.0% YoY it is the highest inflation reading since September 2011. Foreign Security Purchase also released better than the previous of 3.1B, but in line with economist predictions of 11.8B, purchases were 11.55B.

A primary marker driving short-term direction, medium and longer-term outlooks remain grossly dependent on the NAFTA negotiations. Comments from US Trade Representative Robert Lighthizer leaned hope to calls in a revitalized NAFTA agreement could be reached. While NAFTA talks continue, the CAD can expect to continue to trade within mostly restricted bounds.

Risk sentiment appeared to improve overnight with EUR rising from 1.1360 to 1.1409 before retreating late in yesterday's North American session to open this morning at 1.1404 against the greenback.

A big day for the Euro today, as we had eurozone inflation data with markets expecting the core CPI YoY July at 1.1%, which printed at the consensus. In light of the European central banks' cautious monetary policy stance, the soft reading is likely to weigh heavily on the Euro.

Heading into the weekend first resistance can be seen at the daily high of 1.1410 before 1.1550 with downside supports seen at 1.335 and 1.3000 respectively.

The Pound Sterling has managed to regain a little ground against the greenback after UK Retail Sales caught the market off guard with a strong July increase. The GBP/USD moved from lows of 1.2690 to touch an eventual high of 1.2753 as the figures released showed an uptick of 0.4%, up from -0.5% in June, the data was well above expectations of a 0.2% increase. The annual pace of sales growth has risen from 2.9% to 3.5% in volume terms.

There was no local data out today. Therefore, markets will be attuned to ongoing Brexit uncertainty/fear of a ‘no deal’/hard Brexit. Also, reports that the US and China will be holding talks at the end of the month have revived hopes of an end to a global trade war which could boost the Pound.

On the technical side, support is seen at 1.2700 followed by 1.2589 (June 21st, 2017 Low) and on the upside resistance seen at 1.2789 and 1.2838.

The Australia dollar found support through trade on Thursday following a stronger than expected labor market print and bounce in the value of the Chinese Yuan. The AUD jumped off intraday lows at 0.7225 following reports the unemployment rate fell unexpectedly to 5.3%, while year to date job’s growth remained confident as the pace of full-time employment growth outstripped part-time work. The AUD jumped to 0.7271 on the back of the most upbeat read as the print lends itself to a tale of gradual improvement, suggesting the next move in interest rates will be up.

The AUD consolidated gains as the Chinese Yuan recovered from near 20-month lows on news China and the US will engage in a new round of trade negotiations before the end of the month. While there is a considerable degree of skepticism, the new talks will yield an ongoing trade agreement the notice of intent to discuss the recent tit for tat tariff conflict has temporarily doused the flare-up in risk aversion and leaned short-term support to the Yuan and AUD as a proxy.

Having touched 0.7289, the AUD opens this morning buying 0.7277 U.S cents as attentions turn to the commentary from RBA governor Lowe as the primary macroeconomic marker governing direction into the weekend ahead of RBA and FOMC minutes next week and the US-China trade talks on Tuesday and Wednesday for a broader long-term course.

The New Zealand Dollar finds itself slightly higher over the last 24 hours, touching 0.6584 this morning. Moving within striking distance of 0.66, the Kiwi consolidated for much of the day as the headlines were a little less cynical in general. In particular, news of a China-US trade dialogue improved risk-sentiment and supported the Kiwi.

The Bird enjoyed a quiet day on the domestic economic calendar with direction again being driven off-shore. In Australia, employment figures were slightly above expectations which say the Aussie appreciate against its counterparts. Against the NZD, the Aussie is now hitting 1.1025. It was, however, the United States that provided the momentum for markets with news that China and the US will resume trade talks. The NZD enjoyed a muted response although did appreciate slightly against the Greenback.

Closing out the week for the Kiwi is a bit more activity on the domestic calendar with PPI Input and Output slated for release this morning. Across the ditch, the Aussie enjoys a speech from the RBA governor, and as always, attentions remain affixed to on-going trade negotiations around the world.