Currency Market Analysis

Oct 30, 2015 | Currency Market Analysis

Global Themes

It’s been a tale of two months for the America’s dollar in October. The month started poorly for the buck when word broke of a sharp slowdown in U.S. hiring the past two months. Weaker job growth and evidence of global weakness seeping into the U.S. economy dampened prospects for the Federal Reserve to boost interest rates before year-end which loosened a key pillar of the dollar’s recent outperformance. But things eventually turned around for the dollar not long after its mid-month fall to seven-week lows against the euro and a three-month bottom against the Canadian dollar. As the month draws to a close, the dollar is perched near its highest level in more than two months against the euro and a basket of currencies, buoyed by renewed hope for the Fed to stick to its conditional vow to hike interest rates in December. Critical for the dollar today will be U.S. data on the consumer and inflation.


Oh baby! The kiwi dollar jumped on expectations that Chinese demand for New Zealand dairy products would rise now that the Asian nation has allowed families to have another kid. Broader market forces still augur a subdued kiwi after New Zealand’s central bank signaled a low tolerance of currency appreciation and a still open door to rate cuts.


The euro caught a month-end bounce on positioning, while tentative signs of recovery in the 19-country bloc also helped. Inflation barely climbed out of the red with a zero reading for October while unemployment improved by a notch to 10.8 percent. The still weak levels of both keep the ECB on track to bolster stimulus by year-end, reinforcing the euro’s recent downturn.


No new stimulus from the Bank of Japan rewarded the yen with a rally. The BOJ voted to keep its key lending rate near zero, disappointing a significant camp in the market that had bet on fresh stimulus with the world’s No. 3 economy teetering on the brink of recession. Markets see an elevated chance of action sooner or later, particularly if mid-November growth data confirm recession.


Sterling was set to close the week and month with a gain against the dollar with markets pulling forward expectations for the central banks on both sides of the pond to boost interest rates.


Canada’s economy grew a third straight month in August, albeit barely and only by 0.1 percent. The data should offer little cause for celebration for the loonie given how the Bank of Canada recently sketched a subdued outlook for growth over coming years. The loonie lost ground in the wake of the news.


The dollar pared some of its wins on the month against the euro, succumbing to month-end profit-taking and data on the consumer that did little to strengthen the case for a year-end rate rise. Consumer spending and incomes both rose 0.1 percent in September. Core or underlying inflation steadied at 1.3 percent annually.

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