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Currency Market Analysis

Jun 11, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar rebounded from multiweek lows, reinvigorated by its biggest daily gain against New Zealand’s kiwi dollar in four years. Buyers of the kiwi currency are catching a colossal price break today after the nation’s central bank surprised many with a decision to slash interest rates by 25 basis points to 3.25 percent. New Zealand’s dollar crashed nearly 3 percent on the session and was flirting with its weakest level in five years. America’s currency was further rejuvenated ahead of data today on the all-important consumer that is forecast to show a pickup in spending. Consumers have been reluctant to spend of late despite the job market dispensing more paychecks and gas prices remaining affordable. A solid showing by the consumer today, the backbone of the world’s biggest economy, would put a Federal Reserve interest rate hike more firmly on the table and open the door to further dollar gains. The euro surrendered a three-week high with the market spotlight shifting back to the U.S. Both the Australian and Canadian dollars lost ground in sympathy with the commodity sibling from New Zealand. U.S. jobless claims are also due today.

GBP

Sterling dipped back below a key level against the greenback after the governor of the Bank of England was mum on interest rates in a speech last night. Those looking for a bullish catalyst for the pound from Mr. Carney’s Mansion House speech were disappointed, causing them to pull some profit off the table, weakening sterling in the process. Sterling may struggle to hold a gain until the U.K. economy looks sturdier and the Bank of England (BOE) seems closer to raising interest rates.

NZD

Time to reach out to buyers of New Zealand’s currency whose exchange rate has fallen today to the lowest level in nearly five years. The kiwi dollar crashed nearly three percent on the session, on pace for its worst day in four years, after the nation’s central bank moved sooner than many had expected to embarking on a rate cutting campaign. The Reserve Bank lopped 25 basis points off its official cash rate, lowering it to 3.25 percent. The RBNZ also signaled that it may need to cut rates further, a dovish outlook that vastly differs from the rate hike-leaning U.S. Fed. The kiwi’s nosedive also drove the Aussie lower which didn’t rally much from an otherwise spectacular jobs report that showed the unemployment fell to a 1-year low of 6 percent.

USD

The dollar added to its session gains following mixed by generally positive U.S. data. Consumers made a comeback in May with spending up a robust 1.2 percent, a whisker better than expected. The spending spree will spell relief and hope that the economy’s first quarter downturn may prove temporary. It also keeps the Fed on course to boost rates. Weekly jobless claims rose a few more thousand than expected to 279,000, a still historically healthy level that marked 14 times in as many weeks under 300,000. The dollar has struggled to sustain data-driven gains. If it does so again today it would demonstrate how markets have largely priced in higher U.S. rates which would result in diminished support for the buck.

EUR

The euro was in a giving mood as the week’s first meaningful look at the world’s largest economy enticed many to cash in on the single currency’s recent out-performance. The euro has found a floor in rising European bond yields but it remains a wobbly one given that Greece had yet to clinch a deal with its creditors for more default-averting cash.

CAD

The loonie appeared at risk of parting with some of its gains following generally solid data south of the border. Canada today reported that factories ran at an 82.7% rate of capacity in the first quarter. The big drop from an 83.5% pace in the fourth quarter marked the most in nearly 6 years. Oil slipped but held above $60.


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