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Currency Market Analysis

Aug 04, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar and its main peers were mostly steady in data and central bank-driven trade. The buck held its chin slightly above water for the week after it slid nearly 1% last week, its worst performance since May. While the dollar and its main peers steadied, New Zealand’s dollar soared by 1% to four-week highs after stronger than expected local jobs data cemented expectations for an imminent hike in lending rates. As for the greenback, its prospects are tied to the job market ahead of the government’s monthly jobs report on Friday. Ahead of nonfarm payrolls, a survey today from ADP showed an underwhelming gain of 330,000 jobs in July. But falling well short of expectations for a gain of nearly 700,000 jobs, the data added more evidence of a moderating U.S. economy. The Fed’s No. 2 official, vice chair Richard Clarida, speaks today at 10 a.m. ET, remarks that could hint at the policy outlook and impact the dollar.


Sterling rose toward recent five-week highs against the greenback after good news on the UK economy added to expectations for the Bank of England Thursday to upgrade its economic outlook. The services industry, the one that does the UK economy’s heaviest lifting, grew at a faster than expected pace last month. A BOE tomorrow that sketches a brighter outlook would sound a hawkish tone that would be consistent with the central bank bringing forward plans to scale bank support that has weighed on sterling.   


Dollar vulnerabilities are on the rise after fresh evidence of a moderating U.S. economy. ADP reported job growth of 330,000 in July which was less than half the forecast of 695,000. The good news is that ADP isn’t an accurate barometer of how nonfarm payrolls might fare. The bad news though was that it lengthened the recent string of weaker than expected U.S. indicators that include second quarter GDP and this week’s ISM survey of manufacturing activity.


The euro was little changed against the dollar as its recent jump to one-month highs petered out. Still, the euro hovered near the upper end of its recent range amid signs of a moderating U.S. economy. After U.S. manufacturing slowed in July for a second straight month, a report today on private sector hiring showed a lackluster gain of 330,000, missing expectations of an increase of 695,000 by a very wide margin. Softer U.S. data of late doesn’t inspire confidence ahead of Friday’s U.S. jobs report.


Canada’s dollar was mostly steady but oil south of $70, a two-week low, didn’t bode well for the commodity-influenced loonie. Oil has provided the main steer for the loonie given the lack of local data ahead of numbers Thursday on trade and Friday on the job market. Headwinds have resurfaced for oil markets as rising Covid-19 cases suggested a dimmer outlook for demand. Commodity cousins from Australia and New Zealand remained on a tear. The kiwi dollar soared to four-week highs after area unemployment hit a pandemic low of 4% last quarter, suggesting a near certainty that New Zealand would raise interest rates to 0.50% from 0.25% on Aug. 18.

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