Currency Market Analysis
Jul 23, 2015 | Currency Market Analysis
The U.S. dollar weakened across the board Thursday, hitting one-week lows against the euro. Listless summer trade combined with little news on the U.S. economy this week has caused the dollar to consolidate a rally that had taken it earlier this week to three-month peaks against the euro. A potential positive for the dollar lurked in the week ahead when the Federal Reserve on July 29 announces a policy decision. The generally improving U.S. economy could result in a more upbeat sounding Fed next week. The dollar would stand to gain if the Fed should play up the possibility of an imminent interest rate hike. New Zealand’s kiwi dollar led gains against the greenback after the nation’s central bank underwhelmed with a smaller rate cut to 3.0% from 3.25% which disappointed a big market contingent that had bet on a bolder cut to 2.75%. Canada’s loonie steadied after closing Wednesday at its weakest in nearly 11 years.
The kiwi dollar stormed back from six-year lows after New Zealand’s smaller quarter percentage point rate cut to 3.0% underwhelmed a market that had largely expected a bigger move. The bounce shouldn’t get the kiwi far as conditions for further currency weakness remain in place. The bank acknowledged a “softer” outlook for growth and said another rate cut seemed “likely.” The RBNZ next meets on Sept. 10.
Sterling only managed a small gain against the weaker U.S. dollar after disappointing news on the U.K. consumer dampened bullishness. Retail sales unexpectedly fell 0.2% in June compared to forecasts of a 0.3% increase. The data introduced the risk that Britain’s Q2 growth on July 28 could stop short of rosy forecasts.
The euro tested the upper limits of a confined range, touching its strongest in more than a week against the dollar. Bearish sentiment ebbed in news today the Greece’s parliament had approved another strong dose of austerity, the price to win a third bailout of about €85 billion from its lenders and remain in the euro. Euro zone PMI business surveys on Friday will shed light on the degree to which the Greek crisis has impacted growth.
The loonie rebounded from its weakest close on Wednesday in more than 10 years. Loonie bears loosened their grip after retail sales amounted to a win for the northern economy. Retail sales jumped 1% in May, two times stronger than forecasts of 0.5%. Though encouraging, the data got outshined by news of the lowest U.S. jobless claims in more than 40 years.
The dollar ran on fewer losses after the best news on America’s job market in decades kept alive prospects for the Fed to move in September. Weekly jobless claims plunged 26,000 to 255,000 the best number since 1973, the year Secretariat won the Triple Crown in horse racing. The report offered the final glance of the job market before the Fed renders a decision on July 29. And being so strong it increased the chance the Fed’s statement would come across more confident and pave the way for a rate hike as early as September, the month dollar bulls are betting on.
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