Global Themes

The U.S. dollar was mixed but mostly weaker Thursday, giving back an overnight gain after the ECB released the minutes of its last meeting. The euro rallied more than 0.5%, though the greenback managed gains versus rivals from Japan, Britain and Canada. The biggest splurge in Australian consumer spending in years supported the Aussie dollar. The U.S. buck largely recovered from the previous day’s decline after China’s trade chief downplayed reports that Beijing was mulling plans to buy fewer U.S. government bonds. The yen weakened below 6-week peaks but remained on elevated ground. The euro was the top performer after hawkish ECB minutes suggested officials may soon alter their policy guidance to reflect an improving economic backdrop. Today’s reading of U.S. weekly jobless claims is forecast to show improvement. More influential U.S. data loom Friday on inflation and retail sales. 

USD

The dollar lost altitude after a soft set of data weakened the narrative for a ‘3-peat’ of rate hikes this year. The producer price index – a gauge of business costs at the wholesale level – softened more than expected to a 2.6% annual rate in December from above 3% in October. Weekly jobless claims unexpectedly rose to 261,000 in the latest period, north of forecasts of 245,000. Today’s inflation reading doesn’t bode well for Friday’s report on consumer prices which are expected to slow from a 2.2% pace. 

CAD

Canada’s buck had a three-month high confiscated amid rising fears that Nafta’s days may be numbered. Canadian officials reportedly are increasingly concerned that the U.S. may ultimately ditch Nafta if it can’t negotiate a better deal. That would pose a serious risk to the Canadian economy which sends the lion’s share of its exports south of the border. Heightened uncertainty over Nafta has the market rethinking the likelihood of the Bank of Canada raising interest rates from 1% next week. Consequently, USDCAD has rebounded to two-week peaks.

JPY

The yen eased below 6-week peaks but remained on elevated ground. The yen continued to bask in the afterglow of a decision this week by the Bank of Japan to buy fewer long-term bonds. Though the move may have been a momentary tweak in policy, it excited yen bulls and gave rise to the view that an eventual withdrawal of low rate policies may come sooner rather than later. 

AUD

The Aussie dollar rallied to three-month highs after the nation’s consumers stepped by spending by the most in 4 years. Retail sales jumped 1.2% in November, smashing forecasts of a 0.4% increase. The data helped to allay concerns about consumer headwinds stemming from their burdensome debt loads and lackluster pay growth. The spending splurge also boded better for Q4 growth and strengthened the case for the Reserve Bank to raise borrowing rates from 1.5% this year.

EUR

Hawkish minutes from the ECB ignited a euro rally. The euro soared more than 0.5% after minutes from the ECB’s December gathering suggested officials may soon upgrade their forward guidance given the bloc’s steadily strengthening economy. The minutes were music to the ear of euro bulls, bolstering the case for officials to taper stimulus this year, and the notion that the ECB may be on a faster track to an interest rate hike. But the key question now is what the central bank thinks of the stronger euro and weaker inflation, which represent dual headwinds on the 19-country economy. The ECB’s next meeting is on Jan. 25.

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