Currency Market Analysis

Aug 14, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar slumped towards one-month lows, on track for its worst week in months. The dollar struggled this week after China’s surprise currency weakening raised concerns about global growth which markets saw as potentially throwing a wrench in Federal Reserve plans to raise interest rates. Oil’s fall to six-year lows around $42 was also seen as complicating the outlook for Fed policy as it strengthens headwinds on already low inflation, another factor that contributed to the dollar’s broad underperformance. Although the case for the Fed to raise rates this year has wavered, markets still see an elevated chance that bankers could move at their coming meeting in September, a view that should help limit falls in the dollar. The two cents the dollar was on track to lose against the euro had it on pace for its worst week in three months. Reports on U.S. manufacturing and the consumer are due out shortly.


The euro moved in close reach of this week’s one-month peak against the dollar and was on track for its best week in three months. The euro’s resilience though seems to be constructed of sticks which keep in place its longer run downtrend. The euro benefited as China’s currency depreciation caused many to unwind CNY positions that were funded in the low-yielding EUR. Fundamentals remained on flimsy ground as second quarter euro zone growth unexpectedly slowed a notch to 0.3 percent.


Britain’s pound was on track for its best week in nearly two months against its U.S. counterpart. Sterling outperformance though largely stemmed from euro strength against the dollar. Underlying sentiment for the pound suffered in data this week that showed the slowest wage growth in three months which augured a later rather than sooner rate hike by the U.K. central bank. Sterling could struggle in the week ahead with U.K. inflation data on Aug. 18 expected to hold at zero, far short of the Bank of England’s 2 percent goal.


The U.S. dollar fared solidly against the Aussie dollar this week which didn’t stand much of a chance amid sliding commodities and heightened worries about the health of its top trade partner: China. Underscoring a very profitable market for Aussie buyers, the Down Under dollar crashed to new six-year lows this week.


As far as oil has fallen this week (it dipped under $42 to six-year lows), the loonie so far has managed to keep its chin above water and wade above recent decade-plus lows against its U.S. rival. Loonie buoyancy doesn’t look convincing however as falling oil prices stand to strengthen a headwind on Canada’s floundering economy, keeping a rate cut on the table. Canadian manufacturing sales disappointed, rising 1.2 percent in June, the low end of expectations.


A modest uptrend in U.S. wholesale inflation helped the dollar pare losses as it served as a marginal green light for the Fed to raise rates. Producer prices rose by 0.2 percent in July, a touch warmer than expected. Wholesale prices have been on a three-month upswing, though the overall level remains tame. A catalyst lurks for the dollar in Fed minutes that come due on Aug. 19.

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