Currency Market Analysis

Sep 30, 2015 | Currency Market Analysis

Global Themes

The dollar started the final day of the third quarter on a mixed but mostly firmer footing. The buck eked out a gain against the euro and a currency basket but edged lower against the commodity trio from Australia, New Zealand and Canada. Global stocks were set to finish a brutally volatile quarter with a solid gain which helped revive risk-taking. Market sentiment perked up on hopes that central banks in the euro zone and Japan would beef up stimulus over the coming months. The dollar saw some of its strength neutralized in the July-September quarter as low inflation and global uncertainty kept a U.S. rate hike on ice for longer. The first inflation reading in the red for the euro zone in six months weighed on the euro. Sterling stabilized after a brush with five-month lows. Top focus today will be on U.S. jobs data and public remarks from a chorus of Fed officials, including Chair Janet Yellen at 3 p.m. ET.


The euro trimmed a quarterly gain of less than 1 percent against the dollar after Europe’s road to recovery suffered a setback. Inflation fell 0.1 percent in September, the first reading in the red since March. Unemployment steadied at a high 11.0 percent for August. With inflation heading in the wrong direction, it dialed up already elevated pressure on the ECB to strengthen and extend its already aggressive low rate policies, weighing on the euro.


Sterling steadied above early May lows against the dollar after data depicted Britain’s economic glass as half full. Britain’s current account deficit, a broad gauge of international trade, shrank to £16.8 billion in the second quarter, down from a £24 billion shortfall in Q1. Still, uncertainty over when Britain’s economy would be healthy enough to tolerate higher borrowing rates had sterling on pace for its worst quarter against the euro in six years, having depreciated some 4.5 percent.


The Aussie dollar firmed on the last day of a torrid quarter, bolstered by rallying global stocks, a sign of revived risk sentiment. Over the third quarter, the Aussie was on track for a seven-cent swoon amid deepening concerns about China’s slowing economy whose weakness has started to wash up on Australian shores. Critical China data Thursday on manufacturing and services growth could mean a day of explosive volatility for the Aussie.


The loonie was little changed on the session, keeping close to 11-year lows, despite evidence that Canada’s economy had turned the corner after spending the first half of the year in recession. July growth proved a touch better than expected, up 0.3 percent. The reading for June, the first positive in five months, got revised down to 0.4 percent from 0.5 percent, a sign the economy had lost a little oomph.


The dollar added to its modest gains after private employment growth topped forecasts, suggesting a lower risk that Friday’s big jobs report would disappoint. ADP reported a gain of 200,000 jobs in September, up from 186,000 in August, and above forecasts of 194,000. A danger for the dollar would be if China data Thursday should steal the limelight from America’s jobs report Friday and unleash around bout of global market volatility which has proven bad for the dollar. For the quarter, the dollar was set for a 0.7 percent gain against a currency basket as uncertainty over the timing of the Fed raising rates fastened a lid on the buck.

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