Currency Market Analysis

Jan 08, 2016 | Currency Market Analysis

Global Themes

Not to jinx but a nascent sense of calm washed over world financial markets Friday, allowing the dollar to reclaim lost ground to the safe haven yen and push broadly higher. No more safety net for Chinese stocks, no problem – at least overnight. China’s discarding of circuit breakers that halted trading when stocks plunge 7% helped to restore order across global stock markets with the country’s main stock index ending Friday with a solid 2% gain. Oil, markets’ other chief concern at the outset of the year, rebounded from 12-year lows which helped commodity currencies from Australia, New Zealand and Canada steady. Traders also gravitated toward America’s currency ahead of the year’s first look at monthly hiring today which, if strong, could add bullish fuel to the dollar and keep the Federal Reserve on track to coax U.S. borrowing rates higher this year.


Gains in Chinese equities and oil Friday offered the Aussie dollar a hand up from three-month lows. The market calm, though, could prove short-lived, leaving the Aussie and other commodity counterparts from Canada and New Zealand on a fragile footing. Australian consumers throw Chinese caution to the wind, with retail sales up 0.4% in November, the fourth gain in as many months.


A soggier set of data from Europe’s biggest economy and a nascent sense of relief over China and oil prices weighed on the euro. The euro tends to outperform when global pandemonium flares as skittish traders shift the carry trade of using the low-yielding euro to fund bets on higher yielders. German factory output unexpectedly contracted, down 0.3% in November.


Canada’s dollar firmed above 12-year lows thanks to upticks in oil and local hiring. Canada netted 22,800 jobs in December, doubling up forecasts of 10,000. Unemployment steadied at 7.1%. All the job gains, though, came from parttime hires, which detracts from the otherwise solid headline number, and suggests limited positive traction for the loonie.


A bullish U.S. jobs report transported the dollar to fresh session peaks as it dialed up pressure on the Fed to raise interest rates in the months ahead. America ended 2015 on a hiring spree, with nonfarm payrolls up a sharp 292,000 in December, nearly 100,000 more than forecasts of 200,000. Unemployment held at 5.0% as expected. Flat wage growth, though, will limit the dollar’s payrolls-inspired gains. Job growth in October and November got revised up by 50,000. America’s rock solid fundamentals bode well for the dollar going forward.


A floundering U.K. pound kept near five-year lows against the dollar with negative sentiment keeping in near multimonth lows against the euro. Data Friday showed Britain logged a smaller trade gap of £10.6 billion in November, down from £11.2 billion. But the news wasn’t enough to allay worries about slowing growth, keeping a U.K. rate hike off the radar for now. Uncertainty and a sense that Britain might have one foot out of the European Union has added to the U.K. currency’s travails.

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