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Currency Market Analysis

Nov 13, 2019 | Currency Market Analysis

Global Themes

Fazed and confused about a trade deal

Safe havens and New Zealand’s kiwi dollar reigned amid a risk laden backdrop. The Swiss, Japanese and U.S. currencies were underpinned by uncertainty over if and when the U.S. and China would reach a trade accord. Down Under, New Zealand’s dollar soared 1% after the country’s central bank unexpectedly left borrowing rates at record lows of 1% which defied forecasts of a cut to 0.75%. Sterling fell after the lowest British inflation in years opened the door wider to a central bank rate cut. Markets a bit fazed about a Phase 1 trade deal weighed on the loonie and Aussie dollar. Positive European factory data helped the euro steady. Caution crept back into the market ahead of Capitol Hill testimony today and tomorrow on the U.S. economy by Fed chairman Jerome Powell, President Trump keeping higher tariffs on the table, and data today on U.S. inflation.


The New Zealand dollar soared by some 1% to one-week highs after a surprise interest rate hold by the nation’s central bank. The Reserve Bank of New Zealand left interest rates at record lows of 1%, compared to forecasts of a 25 basis point cut to 0.75%. The RBNZ cited higher inflation and the weaker kiwi, which is down about 5% this year and hit 10-year lows earlier this month. The bank’s forecasts suggested further rate cuts might be a close call. The notion that area rates may have bottomed suggests a path for kiwi outperformance over the short run. 


The euro steadied around four-week lows as it barely kept its chin above a key psychological floor. The euro steadied after euro zone industrial production unexpected rose with a 0.1% increase in September. The euro’s floor could potentially give way for the single currency if German growth data tomorrow should disappoint and confirm recession in the bloc’s biggest economy. 


Canada’s dollar fell to fresh one-month lows as confidence cooled anew in a U.S.-China trade deal. It also didn’t help the loonie that the price of oil weakened below $57 as markets turned more cautious. A lack of meaningful domestic data this week has led the local dollar to look to global drivers for direction. A speech this week by President Trump suggested the U.S. may proceed with a new round of tariffs on China next month, a scenario that could further dim the global outlook to the detriment of commodity exporters like Canada. 


Sterling fell but stuck to recent ranges as political and Brexit developments continued to dictate sentiment. The pound weakened after British inflation slowed more than expected to 1.5% in October, the lowest in three years, from 1.7% in September. Inflation falling further below the Bank of England’s 2% goal validated the decisions of a pair of central bankers who less than a week ago voted for a pound-negative rate cut from 0.75%. 


The greenback firmed as it served as a safe haven from weaker global markets, while higher U.S. inflation cemented the view that the Fed was done cutting interest rates for the year. U.S. consumer prices rose by 1.8% in October, a tick higher than forecasts to steady at 1.7%, which moved prices to within a couple ticks of the Fed’s 2% benchmark. The head of the Fed, Jerome Powell, will command attention today when he testifies on the economic outlook before congressional lawmakers starting at 11 a.m. ET. Remarks that voice confidence in the health of the economy would affirm markets’ high bar for a rate cut anytime soon, a tone that could support the buck.

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