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Currency Market Analysis

Jul 07, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar rode a safe haven rally to one-month highs against the euro, its strongest in three against Canada’s loonie and to fresh five- and six-year highs against the New Zealand and Australian dollars. The swift downturn in oil had the Canadian currency within a penny of multiyear lows. Markets flocked to the dollar, the world’s most liquid and sought after currency when the global outlook darkens, to ride out uncertainty stemming from Greece’s ongoing debt crisis and stock volatility in China. Talks may have reopened between Athens and its creditors but Greek bank had yet to reopen, keeping the risk of a full-blown banking crisis elevated. Markets still assign about an even chance of Greece remaining in the euro, uncertainty that should keep in place a low ceiling above the euro. Interest rate differentials between loweryielding European government bonds and higher-yielding U.S. Treasuries also buoyed the dollar. But despite the dollar’s outperformance, its short run outlook remains hazy following last week’s mixed U.S. jobs report. North American trade data come due today followed by much anticipated Fed minutes on Wednesday.

CAD

Already at a three-month low, the Canadian dollar sank to less than a penny away from six-year lows after Canada’s monthly trade gap unexpectedly swelled to one of the biggest on record. Canada posted a C$3.34 billion trade deficit in May as exports fell 0.6 percent and imports rose 0.2 percent.

EUR

Make that a five-week low for the euro. Markets seem to be losing patience and faith in the Athens’ debt crisis ending with Greece’s banks intact and the country still a member of the 19- currency club. Still, panic had yet to set in for markets which helped slow the descent of the single currency. Talks resumed today between Greece and its creditors on a deal to offer much needed financial life support to Athens. Without a deal soon, Greece’s banks could have a matter of days before collapsing. The outlook for the euro doesn’t look good. But major falls for the euro could be stemmed by the ECB’s can-do attitude when it comes to tackling major risks that threaten the bloc.

GBP

Sterling neared a one-month bottom against the safe haven strengthened U.S. dollar. Mixed news today on Britain’s factory sector did little to slow the pound’s fall as industrial output unexpectedly rose (0.4 percent) but manufacturing output surprisingly fell (-0.6 percent). Talk about big savings: The pound has fallen by a whopping five cents since hitting seven-month highs near $1.60 less than three weeks ago.

AUD

Aussie dollar denominated bills fell to fresh six-year lows after the Reserve Bank of Australia kept its low rates intact at 2 percent and still dubbed its value on the high side and poised for further falls. The recent rout in Chinese stocks that have shed some 30 percent in value in recent weeks compounded the move lower in the Aussie. The immediate road ahead looks bearish for the Aussie with local employment data on Thursday forecast to show hiring down (-5K) and unemployment up (6.1 percent).

USD

A handful of positives powered the dollar higher with the U.S. currency notching five-week highs versus the euro and a currency basket while it crept ever closer to reclaiming a six-year high against the oil-battered Canadian dollar. Interest rate differentials in its favor, safe haven flows on worries about Greece and China, and expectations the Fed is edging closer to boosting interest rates all converged to buoy the dollar. Key event risk looms Wednesday when the minutes from the Fed’s last meeting come due.


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