Currency Market Analysis

Jul 24, 2015 | Currency Market Analysis

Global Themes

Canada’s loonie plunged to decade-plus lows while commodity siblings from Australia and New Zealand also tumbled after weaker than expected factory surveys from China and Europe rekindled worries about global growth. Manufacturing contracted in China and France while growth in Germany and the euro zone lost momentum. The U.S. dollar strengthened with markets one day closer to a Federal Reserve announcement set for the middle of next week. Though firmer, the dollar was still poised for an off week against the euro with the U.S. currency falling prey to profittaking after a buoyant run. Key to the dollar’s outlook will be the tone of the statement the Fed releases on July 29. An upbeat message that should play up the possibility of a rate hike in September would have the dollar in line for more gains. A cautious statement, on the other hand, that eyes a later lift-off would deal a momentary setback to the buck.


The Aussie dollar led losses against the greenback as its more than 1 percent tumble took it to new six-year lows. Falling commodities and the weakest Chinese manufacturing in 15 months stiffened headwinds on the Aussie. Moreover, persistent weakness in China increases the chance the Reserve Bank may have to lower rates further from 2.0 percent.


Buyers of Canada’s currency can reap a massive price cut today as the loonie crashed to September 2004 lows. The renewed slide in oil risks increasing an already forceful headwind on Canada’s economy, one the nation’s central bank thinks spent the first six months of the year in reverse. The divergent prospects for growth north of the border compared to the recovering south augurs further losses for the Canadian dollar over the months ahead.


Price drop for U.K.-denominated exposures! Sterling fell to ten-day lows after expectations of an early British rate hike suffered a setback. U.K. consumers unexpectedly turned cautious in June as retail sales fell. Meanwhile, with commodities on the swoon and oil back below $50, U.K. inflation, currently running at zero, faced a longer road to returning to the Bank of England’s 2 percent target. Today’s GBP price drop could soon dissipate if data on July 28 show the U.K. economy grew at a faster rate.


The dollar enjoyed broad gains as a bout of profit-taking seemed to run its course with the market increasingly looking ahead to next week when the Fed announces a policy decision. Will next week mark the final meeting the Fed holds fire on a rate hike? Many dollar bulls see scope for the Fed to raise rates at its mid-September meeting following stellar news this week that showed home sales at multiyear highs and jobless claims at near record lows.


The euro lost ground to the broadly improved U.S. dollar, though it was still set for a week of appreciation. Euro bears apparently were among those on holiday this week with the single currency benefiting from the dollar’s giving back of recent gains on profit-taking, and Greece’s slow but steady progress toward getting its hands on more bailout money. Reinforcing the euro’s bearish backdrop, manufacturing surveys from Germany and France, Europe’s two heavyweight economies, fell short of forecasts.

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