Currency Market Analysis

Nov 09, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar parted with a few of its jobs-driven gains Monday but sentiment remained resoundingly positive after healthy hiring data Friday. The dollar kept close to six and near seven-month peaks against the euro and a currency basket after a blockbuster jobs report galvanized expectations for the Federal Reserve to boost interest rates as soon as next month. Suggesting the U.S. job market was back on track after a recent slump, hiring surged by 271,000 in October, the most all year which lifted wage growth by the most in six years and nudged unemployment down a notch to 5.0 percent, the lowest in more than seven years. In the week ahead, the dollar will contend with remarks from top Fed officials and late week data on the consumer, America’s main growth engine. Outcomes that keep a December rate hike in play would reinforce the dollar’s bullish bias.


The euro found tentative footing above its weakest level in more than six months against its U.S. counterpart. The euro has shed a whopping 6.5 percent in value against the dollar since mid-October, a decline that can help the bloc’s battle against low inflation by pushing up the cost of imported goods. If sustained, a weaker euro suggests the European Central Bank ECB might not have to go as aggressively in strengthening stimulus, a view that could help ease headwinds on the euro.


Sterling stabilized after a four-cent swoon over the past week dropped it to its lowest level in more than six months against its U.S. peer. Markets this week will turn to critical U.K. jobs data on Wednesday to gauge how much downside remains in the pound’s latest lurch lower. For a meaningful reprieve, the midweek jobs data would need to surprise to the upside. Forecasts call for only modest improvement.


Weak trade data from China weighed on the Aussie dollar which hit one-month lows against its U.S. rival earlier Monday. Subsequent profit-taking in the U.S. dollar’s jobsinspired gains helped the Aussie pare some of its decline. Not boding well for Australian growth, Chinese imports plunged nearly 19 percent in October.


The loonie was just north of recent lows but still within a couple pennies of 11-year lows against its U.S. counterpart. Underlying sentiment for the northern dollar remained fragile, keeping it at risk of testing decade-plus lows hit in late September. Canadian housing starts slowed more than expected to an annual rate of 198,100 in October, data that followed mixed jobs news on Friday.


Buying fatigue and profit-taking caught up with the higher flying U.S. dollar, coaxing it off six-month peaks against the euro and a currency basket. Bullish sentiment suggests shallow scope to the downside while pullbacks are liable to give way to renewed dollar buying. Dollar catalysts lurk this week in remarks throughout the week from Fed officials and Friday data on retail sales and consumer sentiment.

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