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Currency Market Analysis

Aug 17, 2021 | Currency Market Analysis

Global Themes

Major currencies were mostly boxed in tight ranges but that didn’t stop the U.S. dollar from rolling over some rivals. The euro inched lower, sterling and the loonie clocked three-week lows while Down Under the Aussie and kiwi dollars plunged 0.6% and 1.3%, respectively. The Aussie dollar fell to fresh 2021 lows and the kiwi dove after New Zealand reported its first case of the virus since February. The resulting near-term lockdown in New Zealand cast doubt on whether central bankers would raise interest rates on Aug. 18, something that had been fully priced in. Markets otherwise wrestled with a trio of concerns related to a moderating Chinese economy, anxiety and unrest in Afghanistan, and rising cases of Covid-19. Attention today will be on U.S retail sales, and a 1:30 p.m. ET speech by Fed Chair Jay Powell. 


The euro inched lower as it remained confined to a tight range against its U.S. counterpart. Europe’s single currency largely took in stride news that the euro zone economy grew at a 2% rate during the second quarter, as expected. Down more than 3.5% this year, EUR/USD has struggled to perform as the ECB is expected to lag behind the Fed in shifting away from rock bottom interest rates. The bloc issues inflation numbers Wednesday with the headline rate expected to be confirmed slightly above the ECB’s 2% goal, though the less volatile core gauge is forecast to remain below 1%.


Canada’s dollar fell to its lowest level in nearly four weeks, a decline that shadowed commodity cousins from Down Under. A risk aversion supported greenback and weaker oil below $67, exerted additional downward pressure on the loonie. Political risk has entered the picture for the loonie with the country headed to the polls on Sept. 20 to decide whether to give Liberal Prime Minister Justin Trudeau another term and potentially a majority in the House of Commons.  


The U.S. dollar largely shrugged off disappointing news on consumer spending as it didn’t meaningful alter a positive backdrop for consumption. Retail sales plunged by a bigger than expected 1.1% in July compared to forecasts of a modest decline. An upgrade to June spending helped the dollar weather the setback to consumer spending, the main engine that drives the world’s biggest economy. The buck continues to draw support from risks to global growth stemming the uncertain outlooks for China’s economy and the geopolitical crisis in Afghanistan, and rising cases of Covid-19.


The UK pound fell to three-week lows as global worries overshadowed constructive news on the British economy. UK unemployment unexpectedly improved by falling a tick to 4.7%. The good news though may not last given the more precarious outlook for the job market once government support expires in September. Weaker world stocks weighed on the pound which takes its cues from broader risk sentiment. The pound would be at risk of further declines if UK inflation data Wednesday should show a marked decline, an outcome that would reduce pressure on the Bank of England to lift interest rates.

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