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Mixed data in the US is not helping the US dollar to find a direction

By OFX

The US dollar index edges higher this morning, although Trump said that they are close to doing something with China on trade, but he didn’t know if he wanted to do it (continuing with the verbal pressure). The Wall Street Journal followed with an article that the US and China are exploring a trade pact that would halt further tariffs from Washington in exchange for talks looking at significant changes to Beijing's economic policies.

The US data was mixed, but weak pending home sales month to month (-2.6 vs. 0.5 percent read), and lower core PCE year to year (1.8 vs. 1.9 percent read) stood out more than better personal income and spending month to month in October (0.5 vs. 0.4 percent read, 0.6 vs. 0.4 percent read, respectively). FOMC minutes played to Fed Powell’s dovish hand, in that most saw another rate increase reasonably soon. Members discussed modifying language on ‘further gradual’ rate hikes in step to becoming more data dependent.

The Loonie is retracting this morning after Canada's real gross domestic product grew by 0.5% in the third quarter, following a 0.7% increase in the second quarter. Final domestic demand was unchanged, constrained by falling investment, while export volumes edged up 0.2%. Strength in the mining and petroleum refining industries boosted corporate earnings. Expressed as an annualized rate, real GDP was up 2.0 percent in the third quarter. In comparison, real GDP in the United States grew by 3.5 percent.

On Friday, leaders of the US, Mexico, and Canada took a step toward easing commercial tensions in the region, signing a new pact that overhauls and updates their quarter-century-old free-trade zone. This came a day before Trump is scheduled to hold a high-stakes dinner in Argentina with Chinese President Xi Jinping.

Crude is trading 1 percent lower this morning, but still above 50 dollars. It is influencing the USD/CAD to trade slightly higher at around the 1.3300 handle.

Aside from the ongoing Italian budget impasse, it’s been a relatively quiet week from the Eurozone, with little coming from a speech earlier in the week from European Central Bank chief, Mario Draghi, and little top-tier data to digest.

Regarding the latest inflation numbers, the Eurozone consumer price index core, year to year, came at 1.0 percent vs. a 1.1 percent read. Also, the Euro-Zone consumer price index estimate, year to year, showed 2.0 percent, precisely as the forecast. Given the recent slowdown in economic output from the Eurozone, combined with oil falling nearly a third in value over the past two months, it seems unlikely we will be getting to under the 2 percent target any time soon without a calming of trade tensions. EUR/USD pair trades at 1.1360 this morning.

The Sterling remains depressed as markets continue to price in Prime Minister Theresa May’s Brexit deal, which is expected to get defeated at the parliamentary vote scheduled for December 11th. There is still time for opinions to change, however it looks likely this situation will roll into the new year adding further downward pressure over the Christmas period. After a quick tour of the UK, May joins the G20 meeting in Buenos Aires, hoping to garner support for reform of the World Trade Organization as she heads for the EU's door. The GBP/USD pair has traded between 1.2744 and 1.2809 over the past 24 hours. it is currently trading at 1.2760.

The AUD/USD pair has managed to keep its head above the 0.7300 handle this week, aided by the recent global US dollar sell-off. There has been little data of note since the poor Private Capital Expenditure number, so eyes will turn to Argentina to see if the Aussie can get a boost from a calming of trade tensions between the US and China. The AUD/USD pair is trading at 0.7305.

The NZD/USD pair has traded between 0.6838 and 0.6887 over the past 24 hours, as traders await the outcome of the G20 summit. Reserve Bank of New Zealand Governor Adrian Orr spoke in Auckland yesterday, however, there was little mention of monetary policy to move Kiwi-crosses. The NZD/USD pair sits at 0.6865.