Currency Market Analysis

Jul 09, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar rebounded from its worst day all year against the yen as market worries over the crises in Greece and China paused for a momentary breather. Chinese stocks jumped nearly 6 percent while Greece was reportedly hard at work crafting a new proposal for aid to get its fiscal house in better order with the aim of keeping the country in the euro. The dollar sank 1.5 percent against the yen Wednesday which took it to seven-week lows. The yen often fares its best when risks facing the world economy rise and markets seek out safer investments. Moreover, Fed minutes showing concern about the underlying health of the U.S. economy and risks facing it from abroad suggested a lower likelihood of a rate hike this year which diluted the dollar’s big advantage over its rivals. Markets will be all ears when Fed chair Janet Yellen speaks on three occasions over the coming week for clues on the U.S. interest rate outlook. Ms. Yellen speaks Friday on the U.S. economy then again on Capitol Hill on Wednesday and Thursday of next week. A bounce in oil helped put a floor under the falling Canadian dollar. U.S. jobless claims are due shortly.


The euro kept its chin above five-week lows notched earlier this week, a hopeful sign that Greece may soon win the rescue cash it needs to shore up its banking sector and remain in the euro. Greece is due to submit a proposal for a three-year loan by Friday, which its lenders will review and decide on Sunday whether the reforms are good enough to warrant another big rescue loan. The outcome is still seen as too close to call whether Greece stays in the euro or drops out, a scenario that could rock financial markets over the short run.


Surprise job growth Down Under and a better day for China’s stock market helped the Aussie dollar rebound from six-year lows. Australia unexpectedly added 7,300 jobs in June versus forecasts of a loss of 5,000. Unemployment inched up to 6 percent from a one-year low of 5.9 percent. Despite the constructive news on the economy, the Aussie isn’t out of the woods given uncertainty over China and Australia’s still open door to further rate cuts.


The dollar held gains against most peers but looked vulnerable after jobless claims printed at a February high of 297,000, just managing to keep below 300,000 for the 18th week in a row. Prints below 300,000 are consistent with healthy monthly hiring. The dollar could be exposed to greater near term volatility after Fed minutes this week struck a dovish note and cast doubt on prospects for rates to rise by September. Markets will be on high alert for rate hike signals when Fed chair Yellen speaks Friday on the U.S. economic outlook then testifies next week on Wednesday and Thursday on Capitol Hill. A longer wait for a rate hike would diminish a big positive for the dollar and leave it vulnerable over the short run.


The loonie rebounded from three-month lows as oil recovered, rising nearly 3 percent to above $53, while better than expected news on Canada’s housing market also lent support. Underlying sentiment though has turned bearish for the loonie after disappointing monthly growth and trade data kicked open the door to a rate cut north of the border. The Bank of Canada (BOC) next decides on rates on July 15 with a minority camp betting on rates to fall from 0.75 percent.


Sterling rebounded from its weakest level in nearly a month against its U.S. counterpart, partly a reflection of markets’ reduced odds of the Fed raising interest rates this year. As expected, the Bank of England (BOE) left its main interest rate unchanged at a record low of 0.5 percent. Minutes from this week’s meeting are due out July 22.

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