USD - United States Dollar
The U.S. dollar index trades flat this morning after the release of core PPI (producer price index) month to month, which came in at 0.2 percent versus a forecast of 0.2 percent. The U.S. Bureau of Labor Statistics reported today that the PPI rose 0.1 percent in May, seasonally adjusted. On an adjusted basis, the final demand index increased 1.8 percent for the 12 months ending in May. It will be interesting to see CPI data tomorrow to have a better idea of what the Fed will do next week following the FOMC rate decision.
President Trump threatened to raise tariffs on China again if President Xi Jinping doesn't meet with him. He said, "I think the differences can be worked out very easily. I would be surprised if he didn't go. I think he is going; I haven't heard that he's not." Mr. Trump said that levies on $300 billion of additional Chinese imports would be imposed immediately if Mr. Xi failed to show up, on top of a 25 percent tariff in place now on $ 250 billion of goods. He added, "We are expected to meet. If we do, that's fine, and if we don't, that's fine. Look, from our standpoint, the best deal we can have is 25 percent on $ 600 billion, OK?"
President Trump once again attacked and complained about the Fed policy and his chairman Mr. Powell. He said, "They made a big mistake. They raised interest rates far too fast... It's more than just Jay Powell. We have people on the Fed that weren't—you know, they're not my people." He added: "they did quantitative tightening, ... and they've now eased that, but it's still $25 billion a month, which is ridiculous. Now, China's doing just the opposite. They're pumping money in. So I'm winning, but I'm not winning on a level table."
The Loonie continues to rise due to external factors, such as the increase of crude oil and North American equity over the last six days. However, on the release side, the trend in housing starts was 201,983 units in May 2019, compared to 205,717 units in April 2019. Economic data in Canada has been mixed, but a stronger than expected jobs report on Friday is contrasting with lower housing starts. For now, the Canadian dollar has an edge against the U.S. dollar as market participants are pricing in multiple rate cuts in the U.S. if the U.S. economy continues showing signs of weakening.
The volatility in the most important FX pair, the EUR/USD, has recently traded at all-time lows of 5 percent. The last couple of times that volatility traded this low was in the spring of 2007 and early summer 2014, the volatility increased immediately after.
Expectations of major central banks are changing. For instance, the ECB and BoJ were expected to begin normalizing their monetary policy in 2019, reintroducing interest rates that are not at or below zero. Nonetheless, it looks like both will abandon the initial expectations and may even go into reverse, potentially adding to their stimulus programs. Just see China, which is announcing new stimulus measures.
1.3240 - 1.3290 ▲EUR/USD:
1.1276 - 1.1351 ▲GBP/USD:
1.2674 - 1.2743 ▲AUD/USD:
0.6940 - 0.6965 ▼NZD/USD:
0.6537 - 0.6606 ▼