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Currency Market Analysis

Jun 13, 2019 | Currency Market Analysis

Global Themes

Canada’s dollar got off to a quick start in oil-driven trade. Oil whipsawed higher after reports of tanker incidents in the Gulf of Oman. Oil soared by more than 3% to nearly $53 which all but erased crude’s dramatic 4% tumble a day earlier. Major currencies otherwise were a bit bashful with the U.S. dollar, euro and yen playing it neutral. Evidence of slowing growth in Europe put a lid on the euro, while the greenback has struggled of late on expectations that the Fed may need to cut lending rates at least two times by year-end. Sterling was also flat-footed as many opted to watch the contest to choose the next U.K. prime minister from the sidelines. The Aussie dollar weakened after Australia’s jobs report was considered weak enough to keep another rate cut in play. U.S. reports are due out shortly on weekly jobless claims and import prices.


The U.S. dollar for the most part remained stuck in neutral after data on jobs and inflation. Jobless claims rose by 3,000 to 222,000 a healthy level that’s consistent with the labor market firing on most cylinders. Import prices, a gauge of inflation, fell by 0.3% in May. While consistent with a low inflation backdrop that lends cover to the Fed to cut rates, it helped that the previous number got revised higher.


The euro steadied with a fragile bias after data confirmed a weakening euro zone factory sector. Industrial production fell by 0.5% in April, the third decline in as many months. The data played up the dovish outlook for ECB policy, suggesting the next move in borrowing rates could be down rather than up.


The Aussie dollar slid in the wake of mixed news on Australia’s job market that resulted in an increased likelihood of further rate cuts. Australia added 42,300 jobs in May, more than double forecasts of 17,500. The problem was that the bulk of the hiring came from less meaningful part-time employment. Unemployment remained at an elevated 5.2%, defying forecasts of a decline. Markets reacted to the data by ramping up the odds of a July rate cut to about 70% from around 50% before the data. 


Canada’s dollar firmed as oil recovered from a 4% shellacking a day earlier. Oil prices whipsawed higher Thursday after tanker incidents in the Gulf of Oman fanned supply concerns. Oil prices remained on volatile ground which can subject USDCAD to surprise swings. Canada’s dollar has capitalized on expectations for the Fed to cut interest rates which would narrow the greenback’s yield advantage over the loonie.

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