Global Themes

The U.S. dollar was mostly steady ahead of a salvo of central bank announcements. Underlying sentiment remains negative for the U.S. currency which steadied near two-year lows. Today brings central bank decisions from Canada and Brazil, followed by announcements tomorrow from the European Central Bank and Sweden. Expectations that the Bank of Canada would at least set the stage for an imminent rate hike had the Canadian currency near two-year peaks. The ECB holds the keys to the euro which hovered close to 2 ½ year peaks. No policy changes are expected by the ECB this week but officials could lace their language in a way that checks the euro’s economy-squeezing rise. An action-packed day ahead also features influential trade data from the U.S. and Canada, and a report on America’s economy-driving services sector.


The Aussie dollar eased off one-month peaks despite news that Australia’s economy grew for a 104th consecutive quarter in Q2. Australia grew at a 0.8% pace during the April-June quarter, more than double Q1’s 0.3% rate. Still, Australia’s Q2 performance stopped a bit short of forecasts and, thus, didn’t alter expectations of steady lending rates over coming months.


The euro steadied near multiyear peaks, albeit with a nervous bias, on the eve of a policy update from the ECB. No policy changes are expected from the ECB Thursday despite a steady stream of bullish data from the bloc since officials late met in late July. Back then, officials had already grown uneasy about the euro’s economy-crimping strength which makes exports, a key growth engine, more expensive, and pushes down already weak inflation. And since July, the euro has appreciated further, up some 13% this year. Any bout of ECB-inspired weakness in the euro may not last long since officials appear poised to rein in stimulus sooner or later.


Sterling maintained gains a day after it enjoyed its best performance in nearly two months with a one-cent spike to one-month highs. The pound attracted some short-covering buying with the market treading cautiously with the euro ahead of the ECB meeting, and the U.S. dollar getting shunned in favor of alternative havens like the yen and Swissie. Sterling faces fundamental drivers Friday when U.K. data on trade and factory output are due. More evidence of a moderating U.K. economy would leave the pound vulnerable to renewed selling.


Canada’s dollar eased below two-year peaks but could see fireworks when the Bank of Canada releases a much-anticipated policy decision today at 10 a.m. ET. At the very least, the BOC could set the stage for an imminent rate increase to 1.0% from 0.75% as soon as bankers’ next meeting on Oct. 25. Don’t rule out a rate hike today after last week’s blockbuster Q2 GDP showed the fastest growth (4.5%) in nearly six years. A wild card for the loonie would be if its strength earns it a tongue lashing from the BOC. Ahead of the BOC, Canada today reported a smaller trade deficit of C$3.04 billion for July.


The dollar was mostly steady though risks abound kept its downward bias intact. The dollar has been weighed down by risks stemming from geopolitics, low inflation and hurricanes, all of which argue against the Fed raising borrowing rates again this year. The hurricanes could impact growth over the short run, spelling increased uncertainty. And the rush to safety has knocked the yield on the U.S. 10-year note to November lows below 2.10%, diminishing the dollar’s appeal. America’s trade deficit widened less than expected to $43.7 billion in July from a revised $43.5 billion shortfall in June.

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