Daily Currency Update

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Powell continues with his dovish tone and the US dollar stops rising this week.


The US dollar index is weakening slightly this morning after FED Chair Jerome Powell signaled that there is no definite time limit to the current pause on interest-rates hikes in a wide-ranging interview on CBS News’ “60 minutes” yesterday. However, Powell said the outlook for the US economy is favorable, and he highlighted risks to global growth from China, Europe, and Brexit. Powell also commented last week about the need to set a “high bar” for any fundamental change to its inflation targeting strategy, as a debate heats up within the US central bank over ways to boost its capacity to fight downturns.

Regarding economic data, the retail sales month to month came in at 0.2 percent when the expected number was 0 percent. Additionally, the retail sales excluding autos and gas for January came in at 1.20 percent versus the 0.60 expected. However, Powell’s latest comments are weighing more on the US dollar this morning. The US dollar has fallen 0.1 percent at the time of this writing.

The Loonie is trading flat this morning, despite that the cost per barrel of crude oil for April delivery was gaining ground to trade at US $56.50 this morning as Saudi Arabia is set to extend deeper-than-agreed cuts into next month. An official familiar with the policy said the country would provide its clients with significantly less crude than was requested. The cuts are part of a broader OPEC agreement that aims to prevent supply gluts.

Technically speaking, the USD/CAD is trading in a consolidation mode after all the gains that pushed the pair from above 1.3300 handle on Monday, March 4th, towards 1.3467 last Thursday, March 7th. We should expect the Loonie to trade quietly this week because there will not be much economic data released until Thursday (housing data set) and Friday (manufacturing sales numbers).

The Euro rout continued right up until the end of last week as it fell against the USD in the previous four days. On top of this, the currency pair also had dropped below the 1.1200 handle for the first time since the middle of 2017. The dovishness seen from the European Central Bank last week was also exacerbated by many of their key officials saying that growth forecasts could still be too optimistic.

This morning, the German industrial production month over month came in at -0.8 percent versus the +0.50 percent expected. This German industrial data for January doesn't only add to the current global doom; it's also a further hit to any optimism about growth in the Euro zone's largest economy.

However, the EUR/USD trades at 1.1247 with a 0.14 percent increase this morning, the reason: USD weakness.

This week again presents the opportunity for some concrete Brexit progress to be made but come Friday we may still be in the same position. There are three key dates and votes to look out for this week on the 12th ,13th and 14th.

If Theresa May is defeated on Tuesday and her Withdrawal Agreement is rejected, which is likely as we can’t see her swinging 115 votes with the limited changes, then Parliament rolls onto the vote on the 13th (Wednesday). At this point, the House of Commons will decide on whether to leave the EU without a deal, i.e. in a No Deal Brexit scenario. It’s likely that this measure will be rejected as well, and so we come to the 14th (Thursday). Vote number 3 will see the House of Commons vote on postponing Brexit once again.

This is where the uncertainty will kick in because either Westminster will vote for an extension or some of the influential European Research Group and Tory backbenchers could look at May’s agreement once again rather than being stuck in the EU maybe indefinitely. As things stand, the Pound is in a state of paralysis trading just above the 1.3000 handle, which is seen by many investors as the border between certainty and uncertainty.

The Aussie dollar, observed as the proxy for the Chinese economy, closed down at the end of last week against the USD. This time it fell to just shy of the critical 0.7000 handle, seen last at the very start of the year. There is little of note for the Aussie dollar this week apart from tomorrow and the National Australian Bank Business Confidence survey. The AUD/USD pair is trading at 0.7050, representing a 0.10 percent increase this morning.

The Kiwi managed to finish last week on the front foot against its US counterpart, but the manufacturing figures did little to excite the currency markets. It will be a quiet few weeks for the New Zealand dollar, and it could be at the mercy of the dreaded currency markets. It is trading at 0.6816, a 0.21 percent increase at the time of this writing.