Currency Market Analysis

Jul 21, 2015 | Currency Market Analysis

Global Themes

Subdued summer trade persisted on Tuesday with a mixed U.S. currency just off three-month highs against the euro and its strongest in more than six years against its Canadian rival. A lull in the U.S. economic calendar over the first half of the week has enticed many to cash in a few of the dollar’s big 2 percent gains from last week which amounted to its best weekly performance in two months. A reduction in worries over crises in Greece and China has put a brighter spotlight on a big positive for the dollar: America’s improving economy has the Federal Reserve on a smoother path to raising interest rates this year. Commodity currencies from Canada, Australia and New Zealand stabilized above six-year lows. A tumble in gold prices to five-year lows should keep the Aussie, kiwi and loonie on a fragile footing. Market action should perk up Wednesday when key U.S. housing data comes due along with central bank minutes from Britain.


Profit-taking also caught up with the higher flying U.K. pound on caution ahead of Wednesday’s release of important minutes from the previous Bank of England (BOE) meeting. Sterling eased toward the middle of its range over the past month, an area nearly 4 cents below the seven-month peak the pound had notched in mid-June.


No imminent bottom appeared in sight for the Aussie dollar whose steady descent since mid-May has taken it to six-year lows. Minutes from this month’s RBA meeting showed that officials still welcomed a weaker currency to help the export-geared Australian economy. Commodity weakness, led gold’s plunge to five-year lows, should keep a stiff headwind on the dollar-bloc trio from Australia, New Zealand and Canada.


Canada’s loonie steadied around six-year lows against its U.S. counterpart with its back still against the ropes following Canada’s somewhat surprising interest rate cut and paler outlook for the northern economy. Another cent of depreciation would drop the loonie to decade-plus lows against the greenback. Next to drive the loonie will be Canadian retail sales on Thursday, forecast to rebound with a 0.5 percent gain in May after a 0.1 percent fall in April.


Profit-taking on the U.S. dollar’s recent out-performance helped the euro pare declines that had taken it to three-month lows. The weight of Greek troubles on the euro also eased after area banks finally reopened this week after a three-week closure. Greece also said it made loan payments this week to both the IMF and ECB, evidence its financial house was in somewhat better shape. Still, meaningful gains are expected to elude the euro for the foreseeable future with the U.S. on track to raise interest rates this year.


The dollar was on a mixed though mostly firm footing, not far from three-month highs against the euro and its strongest in more than six years versus the loonie. The dollar seems to be using a lull in America’s data calendar to catch some breath after logging its best week in two months. The ball is seen in the hands of U.S. housing market this week to drive the dollar. The main items on the calendar are existing home sales Wednesday and new home sales Friday. Next week is huge with the Fed and Q2 growth.

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