Currency Market Analysis
Jul 31, 2015 | Currency Market Analysis
America’s currency was a little weaker on Friday, the last day of the month when activity tends to be dominated by position squaring and book balancing. The broadly weighted dollar index was on track for a monthly of nearly 2 percent as U.S. growth rebounded, keeping a near-term Federal Reserve interest rate hike on the radar. Data this week showed U.S. growth proved positive in the first quarter, up 0.6 percent, compared to previous estimates of a mildly negative print. Growth topped 2 percent in the second quarter with many expecting steady hiring to lead to further acceleration over the balance of the year. The dollar Friday was mixed but mostly weaker, down versus the euro but keeping near seven-week highs against the yen. The Swiss franc surged on news its central bank endured record losses intervening in currency markets to stem franc appreciation. The loonie was down ahead of key news today on Canadian monthly growth.
Month-end activity helped the euro eke out a gain on Friday. No change in Europe’s fundamental backdrop on Friday should keep underlying negative sentiment intact. The euro zone’s jobless rate stayed at a high 11.1 percent for a third straight month in June while inflation remained at a low 0.2 percent. For the month, the euro was on track to shed nearly 2 percent in value to its better performing U.S. counterpart.
Sterling was on pace for a gain on the week against the dollar but poised for underperformance on the month. Sentiment brightened for the pound around mid-July when area central bankers penciled in an earlier rate hike. Consequently, the notion the Bank of England might not be far behind the Fed in normalizing rates has the pound poised for gains in the weeks ahead. Sterling gains are sure to be tested on Aug. 6 when the BOE makes a rate announcement and issues a fresh quarterly survey on inflation.
The Aussie dollar notched another 6-year low and was putting the finishing touches on its worst monthly performance (¬5.4 percent) since October 2014. Sentiment has steadily eroded since mid-May under the weight weakening commodity prices and struggling growth in China. Expectations the Fed is close to a rate hike have added salt on the Aussie’s wounds. AUD buyers beware! The RBA looms next week (Aug. 4) and could impact your exceptionally favorable market. Forecasts call for rates to remain at 2.0 percent. Lock in profits today with forwards or options.
Still no growth in Canada this year, disheartening news that leaves the loonie poised to make a run at fresh decade-plus lows. Canada’s economy unexpectedly contracted 0.2 percent in May versus forecasts of a flat reading. The loonie managed to gain on the news as disappointing data on U.S. wage growth overshadowed and weakened the big dollar.
Already down Friday on month-end profit-taking and position squaring, losses for the dollar accelerated after disappointing wage numbers threw a wet blanket over expectations for a Fed rate hike by September. Wage growth slowed to 0.2 percent in the second quarter, down from 0.7 percent in Q1. The Fed wants to see stronger wage growth before increasing the cost of borrowing. Key for the dollar will be America’s jobs report on Aug. 7 that’s forecast to show July hiring generally in line with June’s solid gain of 223,000.
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