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The US dollar is losing its shine after the mood improves in global equity markets

By OFX

The US dollar index moved within a wide range of 0.86%, ending 0.68% higher in yesterday’s session. Yesterday was another negative day with US equities lower again (SPX -1.82%, Dow -2.21%, Nasdaq -1.7%). However, the story is different this morning: the US index is weaker due to US stocks looking poised to regain ground as market participants counterbalanced the late selloff.

The equity market pullback does underscore the uncertain outlook for what the Fed will do when they meet on December 19, probably marking their fourth rate increase this year. According to The Wall Street Journal, Fed officials are divided over how many times the central bank will raise rates next year. Projections released after the Fed’s meeting in September showed officials are roughly equally split over whether the economy will require two, three, or four rate raises next year. This morning, the core durable goods orders (monthly) were at 0.1% when the forecast was 0.4%; this is causing negative pressure on the US dollar.

The Loonie is recovering its losses this morning, after the US dollar gained strength in a “risk off” environment, acting as a safe haven yesterday. The S&P/TSX and S&P/TSX 60 fell 1.29 percent and 1.37% respectively. The second main driver of the weak Loonie was crude, which had a 7% fall yesterday. The USD/CAD pair moved to a new 5-month high at 1.3318.

However, this morning the USD/CAD pair is falling 0.2%(stronger Loonie) due to a better mood in equity markets and a moderate bounce of 2.6% in crude.

The Loonie was also under pressure following Bank of Canada Senior Deputy Governor Carolyn Wilkins’ comments that some market players consider dovish. Wilkins said, “We will need to improve our methods to account for considerations such as distributional effects and financial stability. We also must ensure that the right supporting policy tools and measures are available in extraordinary circumstances.”

The Euro fell away against the dollar throughout yesterday’s session as some dollar strength returned to the market. Aiding the move was a widening in the spread between Italian and German 10-year yields, which reached a one month high of 335 basis points on the back of ongoing Italian budget concerns. The minutes from the last meeting of European Central Bank will be released tomorrow, with investors looking for clues over the timing of the ECB’s next rate hike as well as policy makers’ thoughts on the recent slowdown in growth seen in the Euro Zone.



GBP/USD fell overnight as the Greenback regained some of the ground lost on Monday. Domestically, last week’s Brexit panic that hit the Sterling hard seems to have calmed a little with no new resignations since the weekend. Additionally, the number of letters from Tory MPs needed to trigger a no-confidence vote in Prime Minister Theresa May has still not been achieved.

The one news story that did see the Pound wobble reported that the Spanish Government may veto any Brexit deal should the future of Gibraltar not be clarified in the proposed withdrawal agreement. GBP/USD fell to as low as 1.2776.

The "risk off" environment seen on Monday and Tuesday saw the AUD/USD fall from 0.7300 to test 0.7202 during yesterday’s session. With European stocks opening higher this morning, the Aussie has rallied as a return to risk-on trade benefits the Aussie dollar. It’s a quiet end to the week from Australia, so global sentiment regarding Brexit, Italy and the US economy will likely be the main drivers of Aussie crosses. At this moment, the AUD/USD pair is trading at 0.7263.



The swings seen in the Aussie dollar this week have been reflected in the Kiwi dollar as risk-off sentiment saw the antipodeans sold. With global equity markets starting positively this morning, the NZD/USD is on its way back up. It is currently trading around the 0.6845.