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ECB's dovish press conference causes USD to strengthen

By OFX

The greenback has extended its gains across most of it's G10 peers after this morning's dovish press conference from the ECB. Currently, the DXY is up .48% today trading at 97.336.

US data was minimal today with Unemployment Claims coming in at 223K vs. the expected 225K.

We will have a lot of data to end the week, which will release at 8:30 am EST. It will include Average Hourly Earnings m/m, Non-Farm Employment Change, Unemployment Rate, and Building Permits. Also, Fed Chair Powell is set to speak at Stanford University about monetary policy normalization.

The Loonie saw further weakness after the Bank of Canada's decision to keep the key interest rate unchanged at 1.75%. Policymakers made a more dovish than expected statement yesterday morning, which saw USD/CAD touch around 1.3450. Softness in consumer spending, housing, and business investment were the main factors. Fourth-quarter data showed lower than expected numbers, which has caused policymakers to switch their stance on how soon future rate hikes would be implemented.

Tomorrow at 8:30 am EST we will have Employment Change and Unemployment Rate. Employment Change is forecast to be 0.3k and Unemployment Rate at 5.8%.

The Euro retreated in overnight trading, hitting a fresh 2-week low at 1.1285 before rebounding and opening this morning above 1.13. Starting the day at 1.1308, the Euro enjoyed a relaxed session on the domestic economic calendar, and was also the beneficiary of some softer than expected US data. This underwrote the slight improvement.

The EU will now take center stage this Thursday morning, with the release of the final version of the Q4 GDP, the ECB’s monetary policy and its subsequent report. The ECB was more dovish than expected on commentary coupled with keeping rates on hold. Market participants sold the Euro in anticipation that policymakers at the ECB will continue revising growth and inflation forecasts lower in 2019. The length of such revisions is of keen interest to market pundits.

The GBP was volatile yesterday, hitting intraday lows of 1.3131, to open at an intraday high of 1.3177 this morning against the USD. This constant bounce in the currency can be owing to the talks from Bank of England’s Monetary Policy Committee members, Cunliffe and Saunders. Key takeaways from Cunliffe’s speech is that Brexit is the most significant risk facing the UK financial sector and that the level of debt is high. Saunders has backed up that talk showing that, with the increased effects from Brexit uncertainties, the economy has recently slowed significantly.

Committee member Tenreyro is due to speak in Glasgow tonight and is expected to give more clues regarding future monetary policy. Halifax Bank of Scotland will also release their House Price Index tonight, which is expected to have a minor impact on the currency.

The Australian Dollar plummeted in Thursday’s local trading session following the disappointing GDP read for the last quarter of 2018. Opening the morning at 0.7085, any chance of breaking the 71 US cent handle was quickly erased as a 40-pip drop was seen on the Aussie as the Australian economy plunged into a per capita recession for the first time in thirteen years.

The Australian economy grew by just 0.2% in Q4 of last year, declining from the previous read of 0.3%, with the annualized read of 2.3% coming in short of 2.8% in Q3. Speculation of interest rate cuts now looks to be increased as markets price in the potential of its first cut by the Reserve Bank of Australia since August 2016.

The AUD/USD continued to be weighed down in the afternoon of the Asian trade, as eventual lows were seen at 0.7023 overnight. With a global economic slowdown continuing to dampen market expectations, trade balance and retail sales are slated for release today. The recent forecast is that we'll see a 0.3% increase for January.

The Australian dollar opens this morning at 0.7030.

After opening just below the 68 US cent handle, the New Zealand Dollar continued its move lower overnight, seeing a 0.4% decline. The Global Dairy Trade Index climbed 3.3% from the previous auction, spurring the Kiwi higher in early morning trade on Wednesday. It was not able to build on any momentum through local commerce as a declining AUD pulled the Kiwi with it to intraday lows of 0.6750, following a disappointing Australian GDP release.

The NZD/USD regained some momentum higher in overnight movements as ADP Non-Farm Employment missed the mark and saw a modest slowdown in job growth.

The New Zealand Dollar opens this morning at 0.6772.