Currency Market Analysis

Nov 24, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar was mixed in light, pre-holiday trade. The dollar was generally steady after hitting the century mark on Monday on a trade-weighted basis, its strongest in eight months. Steady signs of an improving U.S. economy have the Federal Reserve on track to boost its key rate as soon as December, the chief pillar of the dollar’s broad buoyancy. Though mostly steady, the dollar lost ground to safer peers from Japan and Switzerland as reports of Turkey shooting down a Russian warplane heightened geopolitical instability. A surprise brightening in German corporate optimism helped the euro steady above fresh seven-month lows. Germany’s influential Ifo survey unexpectedly improved to 109 in November, the highest in nearly 1½ years, from 108.2. Sterling hit a two-week low while Canada’s dollar kept near its weakest in seven weeks. Revised U.S. growth and consumer confidence are due today.


Collapsing commodities weighed on the Aussie and kiwi dollars with the latter not far from recent early October lows. The Aussie had its fall slowed by upbeat remarks from the head of Australia’s Reserve Bank, Glenn Stevens, who anticipated growth to pick up thanks to increased hiring of late. The RBA is expected to keep the cash rate parked at 2.0% when it renders its next decision on Dec. 1.


The downing of a Russian warplane helped oil catch a bounce but not the Canadian dollar, a sign of how sentiment remains bearish. Oil firmed to $42, holding near ultralow levels that amount to a headwind on the commodity-driven Canadian economy. The loonie kept around seven-week lows and within striking distance of an 11-year trough.


Better news on Europe’s largest economy helped the euro stabilize above seven-month lows against the dollar. Germany’s key Ifo survey of business optimism unexpectedly jumped to a 17-month high of 109 in November. Despite the improvement, the survey is unlikely to dissuade the ECB from strengthening stimulus next week to help keep the bloc’s low flying recovery intact. Bearish sentiment leaves the euro prone to selling on bounces, suggesting a short shelf life for any gain.


U.S. growth got upgraded last quarter but the dollar elicited little more than a yawn as the data wasn’t the freshest and didn’t change the big picture: The economy is at or near rate hike shape. The world’s biggest economy grew at an annual rate of 2.1% during the third quarter, above the first estimate of 1.5%. Heightened geopolitical uncertainty should help lend safe haven support to the dollar during the Thanksgiving holiday.


Dovish talk from Britain’s central bank chief and downbeat data on the U.K. consumer pulled the pound to its lowest in weeks against the dollar. Mark Carney said that British rates would stay at record lows for ‘some time,’ reinforcing expectations liftoff could be a year away. Adding weight to the low-rate outlook, a gauge of U.K. consumer spending slowed to the weakest in 9 months in November, a troublesome sign for fourth quarter growth.

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