Global Themes

With markets back to focusing on global interest rates, the U.S. dollar fared buoyantly, rising to its strongest in seven weeks against the euro and to fresh six-year peaks against peers from Canada, Australia and New Zealand. Fears over Greek debt and slowing growth in China are in remission, at least for now, returning attention to global fundamentals. Few currencies can compete with the dollar on a fundamental basis, with the U.S. economy on the mend after its winter downturn. America’s improving prospects have the Federal Reserve on track to raise interest rates this year. Meanwhile, interest rates abroad appear to have further room to fall. Canada’s loonie sank to March 2009 lows after its central bank slashed interest rates yesterday, its second reduction this year, to shore up its oil-battered economy. The dollar should take cues today from remarks from the heads of the U.S. and euro zone central banks and key U.S. jobs data.

GBP

Few currencies can compete against the dollar on a fundamental basis, but sterling is one of them. Sterling hit twoweek highs against the dollar this week and notched new sevenyear peaks against the euro after the Bank of England dropped hints that U.K. interest rates might rise a bit sooner next year with the economy on a steady path to recovery. Key for the U.K. rate outlook will be BOE minutes that come due on July 22.

EUR

Markets took positive overnight news on the Greek crisis as a fresh sell signal for the euro. Greece cleared its first hurdle to securing its third bailout in five years after the country’s parliament passed the austerity bill. The news helped keep in check worries about the Greek crisis which kept the spotlight on fundamental drivers, a source of negativity for the euro. As expected, the ECB today stood pat on policy. President Mario Draghi reiterated the bank intended to keep QE stimulus in force until at least September 2016. On Greece, Mr. Draghi signaled the ECB would increase its emergency credit to Greek banks.

CAD

Canada’s somewhat surprising rate cut this week continued to take a toll on the loonie which held at six-year lows. The move was seen as too close to call. What wasn’t expected though was the dovish tone the bank struck with it forecasting a second straight quarter of negative growth for the second quarter. That would meet markets’ definition of recession. Canada’s cut at a time the Fed is laying the groundwork for a rate hike wields the potential to knock the loonie several cents lower over coming months.

AUD, NZD

Expect the underperformance of commodity currencies to persist while the market focus remains on the outlook for global interest rates. Both the Aussie and kiwi dollars sank to new six-year lows on Thursday, seen in the same ‘easy’ boat as the Canadian dollar. New Zealand may be next in line to cut interest rates after subdued inflation data overnight. The RBNZ’s next meeting is a week away on July 23.

USD

It’s the same story, but it’s a compelling one: The Fed is poised to raise rates for the first time in nearly a decade. That bullish narrative is behind the dollar’s revival. Adding to the case for the Fed to hike interest rates, weekly jobless claims improved more than expected, falling by 15,000 to 281,000. That marked 19 weeks in a row under 300,000, a level under which is consistent with solid monthly job growth.