News & Resources

Market Analysis

Latest Insights
Press Releases
Latest Insights

Daily Market Analysis
Summertime and the Living is Easy

by Stephen Casey | August 16, 2016

Good morning. The US dollar is trading at multi-week lows on Tuesday, losing ground against almost every major currency after dovish comments from the Fed’s Williams sparked another sell-off. The US dollar lost more than 1% against commodity-back currencies and hit a seven-week low against the yen as those traders not on vacation adjust to the Fed’s new outlook, pushing back the next rate hike further into 2017. Equities were similarly lower overnight, just a few hours after US indices marked another record close. North American futures are slightly lower as we distribute our analysis this morning, but as stocks remain the only asset providing real return, any dip could be short lived as central bankers continue to prop them up and focus more on easier policy in efforts to stimulate stagnant growth.

In a paper released overnight, San Francisco Fed President John Williams argued that global central banks may have to raise inflation targets and focus more on growth, reiterating comments from other prominent policymakers that looser fiscal policy may be the answer in the shorter term. Mr. Williams’ comments come at a time when speculation of aggressive easing surround the Bank of Japan, the European Central Bank and the Bank of England, which cut rates and increased quantitative easing at its most recent meeting amid the Brexit fallout. The minutes from the most recent Reserve Bank of Australia meeting hit the wires on Tuesday and painted a similarly cautious picture. The Aussie is soaring higher at the greenback’s expense but policymakers down under express similar caution on their economy, having cut rates to record lows just last month. Australia’s central bank specifically cited slow growth, unemployment and depressed wages as reasons for their easy action. The euro is putting to test important technical resistance this morning and sterling has finally bounced a bit – supported by local inflation readings on top of the greenback’s woes. There was a slight dip for the euro early in the session, but it was fleeting on the smaller than expected recovery in the August ZEW reading.

Monday presented another very quiet start for North America. The US and Canadian dollars were largely unchanged against the other major currencies without any key data points released. This morning, traders got an important look at US consumer prices for the month of July. It was reported that consumer prices were flat for the month of July and rose only slightly over the previous period in 2015. Housing starts rose 2.1% in the month of July and soon to follow will be industrial and manufacturing production figures, to be released shortly. After very disappointing second quarter growth, this morning’s figures are worth watching as investors look toward Q3. The greenback may be able to finally catch a bid should production in those sectors begin to pick up as some economists anticipate third quarter growth to be somewhere around 3-3.5% annually. As earlier reported, today’s comments from the Fed’s Williams really hurt the US dollar as vacation markets push those “long dollar” positions to their stop-loss brink. Over the next few weeks, we should find out just how much pain lies in the market. Tomorrow’s FOMC Minutes and more speeches from members Lockhart, Dudley and Bullard remain this week’s highlights.

The Canadian dollar started the week trading at its highest level against the US dollar since mid-July. Last week’s OPEC rumors sparked a rally for oil prices and the loonie, which has jumped more than 2.5% in less than one week. Interesting to note though is that the four-week correlation between the Canadian dollar and crude fell to an 18-month low just last week. As reported by Bloomberg News, Canada’s economy continues to fall behind that of the US, highlighted by the July jobs reports which continues to favor the US. Could the recent oil-driven dip in USD/CAD be short-lived? Time will tell as Wall Street does not forecast the same kind of third quarter turnaround for Canada as it does the US, coupled with Canada’s largest-ever trade deficit of C$3.6 billion. On Friday, Statistics Canada will release July inflation figures, +1.5% is expected.

 

To receive our market analysis direct to your inbox daily subscribe here!

“Cambridge Global Payments” is a trade name, which in this document refers specifically to one or more of these legal entities: Cambridge Mercantile Corp., Cambridge Mercantile Corp. (U.S.A.), Cambridge Mercantile Corp. (Nevada), Cambridge Mercantile (Australia) Pty. Ltd.

Cambridge Global Payments (“Cambridge”) provides this document as general market information subject to: Cambridge’s copyright, and all contract terms in place, if any, between you and the Cambridge entity you have contracted with. This document is based on sources Cambridge considers reliable, but without independent verification. Cambridge makes no guarantee of its accuracy or completeness. Cambridge is not responsible for any errors in or related to the document, or for damages arising out of any person’s reliance upon this information. All charts or graphs are from publicly available sources or proprietary data. The information in this document is subject to sudden change without notice.

Cambridge may sell to you and/or buy from you foreign exchange instruments (including spot and/or derivative transactions; both kinds are here called “FXI”s) covered by Cambridge on a principal basis.

This document is NOT: 1) Advice of any kind, or 2) Approved or reviewed by any regulatory authority, or 3) An offer to sell or a solicitation of an offer to buy any FXIs, or to participate in any trading strategy.

Before acting on this document, you must consider the appropriateness of the information, based on your objectives, needs and finances. For advice, you must contact someone independent of Cambridge.

Certain FXIs mentioned in this document may be ineligible for sale in some locations, and/or unsuitable for you. Contact your Cambridge representative for further information regarding product availability/suitability before you enter into any FXI contract.

FXIs are volatile and may cause losses. Past performance of a FXI product cannot be relied on to determine future performance.

This document is intended only for persons in Canada, the US, and Australia. This document is not intended for persons in the UK or elsewhere in the EEA. In Australia, this publication has been distributed by Cambridge Mercantile (Australia) Pty. Ltd. (ABN 85 126 642 448, AFSL 351278); for the general information of its customers (as defined in the Corporations Act 2001). This entity makes no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law.

Fees may be earned by Cambridge (and its agents) in respect of any business transacted with Cambridge.

The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact the applicable Cambridge if you wish to use Cambridge services to enter a transaction involving any instrument mentioned in this document.

© Copyright 2018, Cambridge Mercantile Corp., ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Cambridge Mercantile Corp. See www.cambridgefx.com for contact details.