Currency Market Analysis
Jul 08, 2015 | Currency Market Analysis
Markets so-called “wall of worry” grew taller on Wednesday which worked in the favor of safer assets like the yen and the U.S. dollar. The dollar lost general ground, due mostly to its slump to six-week lows against the yen. But the U.S. currency notched multiweek highs versus sterling, multimonth highs against its Canadian counterpart, and fresh multiyear peaks versus the Australian dollar. Adding to concerns about Greece’s debt crisis and the elevated risk of Greek banks soon going belly up, Chinese stocks extended a weekslong rout. For a long time, China’s once high-flying stock market seemed out of sync with the broader Asian economy which has slowed markedly in recent years. Now, a sharp correction is taking place. The big worry for markets is that China’s sinking stock market could weigh on the nation’s already slowing economy and deal a setback to global growth. The euro steadied above fiveweek lows as Greece continued to push for a fresh bailout loan. The minutes to the Federal Reserve’s previous meeting get released today, records that should hint at the road ahead for U.S. interest rates and thus impact the dollar.
Sinking commodity prices and plunging stocks in chief trade partner China provided a recipe for a weaker Aussie dollar which notched a new six-year low. Aussie losses are at risk of accelerating with weakness on the cards for the nation’s monthly jobs report on Thursday. Employment is expected to fall by 5,000 in June which is seen lifting unemployment a tick to 6.1%.
Canada’s loonie floundered at three-month lows after another miserable report on the Canadian economy opened the door a little further to a potential Bank of Canada rate cut as soon as next week. Building permits sank at a faster than expected rate of 14.5% in May. That followed shocking news Tuesday that showed a near record trade deficit in May. The BOC mulls a rate decision on July 15 and coupled with the renewed slide in oil it wouldn’t be totally out of the question for officials to slice rates, currently at 0.75%, to new lows.
The dollar’s fall to six-week lows against the yen caused it to drift below five-week highs against the euro and a currency basket. Caution also set in before today’s 2 p.m. EDT release of the minutes to the Fed’s last gathering in mid-June. Downside risk for the dollar is considered limited particularly with markets skittish over Greece and China, which buoy its safe harbor standing. But upside for the dollar could also prove limited if today’s Fed minutes should do little to offer clarity on when officials might raise interest rates.
Sterling slipped to four-week lows against its safer U.S. counterpart. The pound has steadily unraveled recent gains against the dollar as markets returned to pushing out expectations for U.K. interest rates to rise following a string of underwhelming news on the British economy. Britain’s finance chief today was due to present a post-election budget, news that so far has had little initial impact on the pound.
The euro stabilized above five-week lows with hope intact that the latest round of negotiations between Greece and its creditors might finally yield an elusive deal to keep the nation afloat and a member of the euro zone. The latest round of talks have seen the euro benefit from any hint of progress, a departure from recent weeks when good news tended to weigh on the euro by fanning risk appetite which enticed many to sell the lower-yielding euro for higher-yielders. The bottom line is that the euro should remain on an unpredictable path until markets gain certainty over Greece’s fate in the euro. It may not take long, perhaps days, to determine Greece’s fate with the nation’s banks teetering on the brink of collapsing.
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