Currency Market Analysis

Aug 10, 2015 | Currency Market Analysis

Global Themes

America’s dollar continued to waver in the wake of last week’s U.S. employment report, though it kept in reach of multimonth highs against a broadly weighted basket of currencies. The buck was little changed Monday against the euro and Canadian dollar while posted a solid gain against the yen, holding close to Friday’s two-month peak. Data Friday showed the world’s biggest economy added more than 200,000 jobs for a third month in a row, which helped cement the case for the Federal Reserve to boost interest rates this year. Gains for the dollar have proven tougher to hold on to these days, a reflection of the still uncertain climate for Fed policy and how higher borrowing rates have largely been baked into its value. Still, bouts of weakness also haven’t lasted long as dips in the U.S. currency tend to be met with fresh buying by the bulls at better levels. Key for the dollar this week will be U.S. retail sales on Thursday.


Fresh signs of economic fragility in China caused the Aussie dollar to start the new week with a fall. Profits remain on the table for Aussie buyers to lock in with the current market among the best in years (six). Weekend data showed surprise erosion in China’s trade balance to a surplus of $43.03 billion compared to forecasts of more than $53 billion. The health of the world’s No. 2 economy is considered crucial for Australia’s economy given their close trade ties.


Sterling steadied after logging its worst week in three months. Britain’s currency shed nearly 1% in value last week after dovish Bank of England events suggested expectations of a sooner interest rate hike were a bit premature. Next to set the pound’s short run course will be influential U.K. jobs data on Wednesday, top-tier numbers that will also speak to the central bank’s interest rate outlook.


The dollar was steady to firmer against its rivals Monday with its sights this week set to news on the American consumer, the main driver of the world’s biggest economy. Retail sales are forecast to bounce back with a 0.5% gain in July after falling 0.3% in June. Solid consumer spending would galvanize U.S. rate hike expectations and underpin the dollar.


The euro steadied in the early stages of the new week, benefiting from the greenback’s inability to sustain its postpayrolls gain. The euro had initially weakened in the wake of news Friday that the U.S. economy added 215,000 jobs last month, a heathy clip that cemented expectations of higher U.S. rates this year. But by stopping a little short of expectations of a gain of 223,000, it left the dollar just vulnerable enough to succumb to a bout of euro-supporting profit-taking. The euro will get a fundamental driver this week in euro zone second-quarter growth data due Friday and forecast to show a second straight month of 0.4% expansion.


Canada’s loonie steadied above 11-year lows though it remained on shaky ground and at risk of adding to its losses of nearly 10% since May. Data Friday showed Canada added a slightly better than expected 6,600 jobs in July, enough to keep unemployment steady at 6.8%. The quality of the report was lackluster, however, as hiring came entirely from the less meaningful part-time positions. Oil firmed Monday but kept below $45, a weak level that amounts to a stronger headwind in the resource-driven Canadian economy.

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