Currency Market Analysis

Sep 02, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar firmed after a stock market-induced tumble the day before. The dollar for the most part has found itself in the same boat as stocks since direction for both has largely been driven by risk sentiment. When market confidence rises and concerns about China abate, stocks and the dollar tend to outperform. When things look grim, like yesterday when factory data from the world’s two biggest economies weakened to multiyear lows, optimism wanes and the market rushes to buy back heavily sold currencies such as the euro and yen. China stocks remained volatile but ended Wednesday with a fractional decline. At the midpoint of a big week, the focus has turned to fundamentals which remain worrisome in Europe and better placed in the U.S., buoying the dollar. Today brings U.S. private sector employment, a precursor to Friday’s monthly jobs data, and then tomorrow brings a meeting of the ECB.


The dollar held on to modest gains after data showed private sector hiring picked up last month. A survey from ADP showed private employers added 190,000 jobs in August, up from 177,000 in July. The increase though fell short of forecasts of 201,000 which could keep upside for the dollar from the data in check. The next big focus is America’s monthly jobs report on Friday that’s forecast to show nonfarm payrolls rose 220,000 in August and unemployment down a tick to 5.2%. The influential report could make or break the case for the Fed to raise rates on Sept. 17.


Support for the euro dried up as global stocks stabilized after a big fall on Tuesday. Much of the euro’s resilience stems from skittish market sentiment which has prompted many to abandon risky plays and scramble to buy back low-yielders like the euro. The ECB’s policy decision Thursday looms large for the euro’s coming prospects. Should the bank play up its dovish stance and signal a readiness to do more to keep global weakness from derailing its recovery, the euro would come under renewed pressure.


Growth in Australia’s economy slowed to the weakest in years, disappointing news that drove the Aussie dollar to fresh sixyear lows. Australia’s 0.2% pace of growth during the second quarter was the slowest in two years and fell short of forecasts of 0.4%, and marked a sharp slowdown from 0.9% in Q1. Momentum in the economy likely petered out further during the current quarter, given instability in China, Australia’s biggest trade partner, and collapsing commodities.


Sterling tumbled to fresh 12-week lows as signs of a moderating U.K. economy signaled a closing door to an early rate hike by the nation’s central bank. GBP buyers may want to act soon though because critical U.K. services data loom Thursday with improvement seen in the cards. Better news on Britain’s services industry, the main driver of U.K. growth, could help to momentary stop the bleeding of the pound’s value.


The loonie sagged to within a penny away from last month’s 11-year lows. Oil kept below $45 following a big decline on Tuesday that overshadowed mixed but somewhat constructive growth data. Quarterly data showed Canada spent the first half of the year in recession. However, monthly data hinted at recovery taking shape with growth up 0.5% in June, the first positive in six months.

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