Currency Market Analysis

Oct 21, 2015 | Currency Market Analysis

Global Themes

Caution ahead of interest rate announcements from Canada and the euro zone kept the dollar’s movements to a minimum. America’s currency was steady overall while it notched modest gains against the Aussie and kiwi dollars which weakened in response to Chinese stock’s more than 3 percent slide overnight. The yen favored its back foot after dismal Japanese trade data suggested area growth would contract a second consecutive quarter in July to September, a harbinger of recession. Japan’s surprise trade gap of ¥114.5 billion ($955 million) in September raised the stakes for new stimulus at the coming Bank of Japan meeting on Oct. 30. Weaker oil below $46 and caution ahead of a policy decision at 10 a.m. ET today by the Bank of Canada had the loonie near session lows. Despite the generally tranquil mood among currencies today, the ECB’s decision tomorrow could rouse a fresh bout of volatility.


The euro steadied as market players took to the sideline ahead of tomorrow’s policy decision from the ECB. The announcement has some of the trappings of a watershed event for the central bank with pressure building for policymakers to kick stimulus into a higher gear to help stave off a deeper backslide in inflation which is running below zero and a country mile from the bank’s almost 2% goal. A weaker euro could help solve some of the bloc’s woes, something that would happen if officials at least signal a heightened readiness to act.


The U.K. pound was steady on caution ahead of remarks today by Britain’s central bank governor, due at 1 p.m. ET. Rallies for the pound continue to get undercut by skepticism in a U.K. rate hike anytime soon with inflation running below zero. Nevertheless, markets will be all ears when Gov. Mark Carney speaks today, comments that should sway the pound.


Any whiff of worry about Australia’s chief trade partner, China, tends to serve as a sell signal for the Aussie dollar and other currencies with close linkages to the world’s No. 2 economy. The Aussie trickled further from recent mid-August highs against its U.S. counterpart after Chinese stocks slid more than 3 percent, a reflection of still festering worries about the health of the Chinese economy despite better than expected third quarter growth.


Today’s another get out the vote day for Canada but this time it’s central bankers’ turn. The loonie was camped near session lows ahead today’s 10 a.m. ET announcement by the Bank of Canada. With the election decided, and in overwhelming fashion, will the central bank find some leeway to hint at a still opened door to lower lending rates with the economy in recession? If it should the loonie would be at risk of resuming its multimonth downturn.


The dollar kept to minimal overall moments with markets keeping one eye on the ECB tomorrow and the other on the Fed which renders a policy decision of its own in a week. For the buck to get back in the fast lane the outcomes of the ECB and Fed would have to shine a brighter spotlight on their divergent policy outlooks.

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