Currency Market Analysis

Sep 10, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar was steady to firmer with risk sentiment continuing to toggle between on and off. The market tends to turn the risk switch ‘on’ when it feels confident in central banks coming to the rescue with stronger, pro-growth policies. That’s when the dollar often outperforms as investors ditch safer, lower yielding currencies like the euro and yen. When markets hit the risk ‘off’ button, the dollar has a tendency to struggle as risk-averse investors dump stocks and currencies with the juiciest yield potential and head for safer ground. A fresh dose of stimulus from New Zealand was mostly offset by steady policy from Britain, though it sent the kiwi dollar toward six-year lows while the pound received a knee jerk boost to multiweek highs. The Aussie dollar got a lift from a surprise fall in Australia’s jobless rate. Slightly fewer U.S. jobless claims are expected for today’s weekly reading, news that should impact the dollar.


Mixed news on the U.S. economy caused the dollar to inch downward though movements were restrained by caution ahead of the Fed next week. On the bright side, jobless claims improved, falling by 6,000 to 275,000, holding around historically low levels, another sign of job market strength. A gauge of inflation, on the other hand, disappointed as the 1.8% slide in import prices marked the biggest drop in seven months. Low inflation lessens pressure on the Fed to raise rates, a negative for the dollar.


The Aussie dollar bounced above six-year lows after better than expected jobs data from Down Under suggested Australia so far was weathering China’s slowing economy. Australia added 17,400 jobs in August, far overshooting forecasts of 5,000, a solid amount that caused unemployment to recede a notch to 6.2%.


The euro steadied with wavering risk sentiment keeping both its upside and downside in check. The euro tends to drift higher when the market mood darkens and stocks fall. A skittish market backdrop boosts the euro as it tends to spark an evacuation out of risky plays and back into lower yielding ones like the euro, home to a rock-bottom rate a speck above zero. 


A decidedly dovish Reserve Bank of New Zealand sent the kiwi dollar careening toward six-year lows. The RBNZ slashed its official cash rate to 2.75% from 3.0%, as expected, and left the door wide open to further rate cuts should its top trade partner China continue to lose momentum.


Sterling jumped to two-week peaks against the dollar after the Bank of England didn’t prove as dovish an event as many had expected. The bank voted 8-1 in favor of keeping rates at a record low of 0.5%. And the bank’s accompanying minutes, which no longer take weeks to get published, didn’t sound the alarm over risks to British and global growth from China’s slowing economy. Gains for the pound could quickly unravel if the recent streak of lackluster U.K. data should persist.


Not finding a positive catalyst in the Bank of Canada’s steady hand this week, the loonie went back to leaning toward 11- year lows. The loonie received a knee jerk boost Wednesday after Canada decided to leave its overnight rate unchanged a 0.50% which wrongfooted some. Although greens shoots have recently sprouted in local trade and jobs figures, cheap oil prices under $50 will keep a headwind on both the resource-driven economy and the loonie which in turn will keep alive the risk of lower lending rates.

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