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Currency Market Analysis

May 26, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar plunged against the New Zealand dollar but was otherwise steady after sinking this week to January lows. The dollar rose above four-month lows against the euro and firmed against rivals from Britain and Canada. The calm before big ticket U.S. data over the balance of the week helped the dollar form a tentative bottom. The kiwi dollar soared more than 1% to three-month highs after New Zealand’s central bank left borrowing rates at a record low of 0.25% but forecast higher borrowing rates as soon as next year. The Reserve Bank of New Zealand’s hawkish guidance stood in contrast to the Fed which continues to downplay inflation risks and expects to maintain rock bottom interest rates over the foreseeable future. America issues first quarter growth and weekly jobless claims Thursday, followed by the week’s marquee event: Inflation and consumer spending Friday.


The loonie slipped from mid-2015 highs as the greenback stabilized and oil moderated after closing Tuesday above $66, its highest level in a week. Persistent greenback selling has slowed ahead of crucial data on the globe’s biggest economy over the balance of the week. The loonie could resume its ascent if Thursday numbers on first quarter growth and weekly jobless claims and Friday’s consumer spending and inflation are consistent with an uneven recovery that allows the Fed to maintain low rate policy for longer.


Sterling shifted into neutral against the dollar after its surge last week to three-month highs. It also didn’t help the pound that one of the week’s limited looks at the UK economy disappointed when a survey Tuesday of consumer spending unexpectedly slowed in May. The pound’s three-week winning streak against the dollar could be in jeopardy if U.S. inflation on Friday should overshoot expectations, a scenario that could push both Treasury yields and the dollar higher.  


The euro eased below its highest in more than four months against the dollar following cautious comments from the ECB. Remarks from area central bankers have poured cold water over chances of the ECB signaling it could slow its pace of support to the economy (i.e. taper bond buying) as soon as its June 10 meeting. Meanwhile, euro bulls are treading carefully ahead of big ticket U.S. data that could hint at the outlook for Fed policy.

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