Daily Currency Update

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Trump’s expectation to move ahead with China tariffs boosts the Greenback


The US dollar is trading flat this morning after increasing by 0.12 percent in yesterday’s trading session. There was an improved risk sentiment yesterday (SPX +1.55 percent, Dow +1.46 percent, Nasdaq +2.06 percent) as market participants reduced positioning ahead of the risk events this week, which include Fed Powell’s speech on Wednesday and Trump/Xi’s meeting towards the end of the week. We expect a sideways price action in the US dollar. The Yen and Swiss Franc underperformed versus the US dollar as an unwinding of safe havens.

The uncertainty will likely increase over the next few weeks because the Federal Reserve officials are moving into a more uncertain phase of policy making after two years of raising rates. The Fed will be deciding their next moves in monetary policy more based on the current economic indicators, such as inflation and growth.

The Loonie lost 0.21 percent versus the Greenback in yesterday’s session, and it is falling an extra 0.12 percent this morning. There will be no important economic data until Friday, when the gross domestic product numbers are published. The US dollar soared steadily against the G-10 major currencies yesterday and then consolidated those gains during the overnight session.

It seems that the North American equity indexes are set to follow European indexes at lower levels, and this might be helping the US dollar to increase against the Loonie.

General Motors’s news that it would close it's plant in Oshawa, Canada, contributed to a deteriorated mood in the Loonie. Furthermore, the Canadian dollar is still bemused from the plunge in crude.

After Italy helped sentiment with government officials, saying they would be open to lowering their budget deficit target to 2.0 percent from -2.1 percent and showing the first signs of budging on their 2.4 percent target, the Euro mostly traded flat in yesterday’s session.

However, Europe is still facing growth headwinds evidenced by Friday’s flash PMI data and today’s German IFO (102 versus 102.3 read). ECB Draghi spoke yesterday and said they expected to end bond-buying in December, but he noted world trade growth momentum had slowed “considerably.” The Euro could not increase, and it is falling 0.1 percent this morning without breaking the 1.1300 handle.

The Pound weakens this morning at 0.30 percent. It seems investors are very reluctant to bid the Pound too high in advance of the vote in the House of Commons on December 11th.(There were some reports yesterday that this would be on the 12th).

GBP/USD has lost even more ground early this morning and has since fallen under the 1.2800 handle. Trump saying that the deal “was great for the EU” hasn’t helped, and with a lack of any positive Brexit headlines since the EU Summit and growing doubts that Parliament will reject the deal, traders are a little jittery, although it may change. Additionally, while Brexit headlines continue to drive direction, economic data is likely to be shrugged off in the meantime, at least in the run-up to the Commons vote.

The Australian dollar is trading flat between the overnight and today’s trading session. The comments from Trump that the US is unlikely to delay implementing tariffs on Chinese goods saw these gains reversed, and resurfaced US-China trade tensions undermining the China-proxy Aussie. The AUD/USD fell back from 0.7269 to an overnight low of 0.7213.

Market participants will be reluctant to take on too big a position in the lead up to Trump and Xi’s meeting this week; local AUD/USD traders will have an eye on upcoming construction work data from Australia.

NZD/USD has ghosted other commodity currencies over the last 24 hours, including the AUD/USD pair. It dropped back overnight, to a low of 0.6754, but has managed a small recovery in the overnight session. It is trading at 0.6796 this morning. Local traders will now be looking to the RBNZ Financial Stability Report and two accompanying speeches by RBNZ Governor Orr. Specifically, investors will be keen to understand if and how the Loan-to-Value Ratio restrictions on mortgages will be relaxed.