Good morning. What a difference a few days makes, eh? The big dollar is in decline again this morning, just about twenty-four hours after more troubling US data leaving Friday’s stellar jobs report way back in the dust. The dollar index has fallen by 0.6% so far today as investors around the world scale back the prospects for future Fed rate hikes. More analysis to come, but it was non-farm productivity this time around which knocked the greenback off its pedestal, right now having its worst run since the Iran hostage crisis. It was another very light economic data slate as the broad market continues to guide foreign currency markets through the dog days of summer.
The weak dollar was the big story as Asian trade kicked off – with the Japanese yen one of the biggest gainers on Wednesday. June machinery orders for Japan rose more than forecast and made up for May’s decline – erasing all of USD/JPY’s gains over the last five days. The Aussie dollar was reached its best level in three months on slightly better than expected consumer confidence numbers presented by Westpac. Outgoing RBA Governor Stevens made some interesting comments overnight, noting the local economy’s slowing growth trend will make it more difficult to repair the budget, doubling down on his opinion supporting targeting inflation. On Wednesday afternoon (Thursday morning), the Reserve Bank of New Zealand is expected to cut interest rates by 25 bps. The announcement will be made at 5pm EST. The euro and pound enjoyed a nice bounce on Wednesday, carrying the torch from Asia at the big dollar’s expense. Despite some early problems for the Bank of England’s new bond-buying scheme – various pension and insurance companies refused to sell gilts to their central bank – sterling has risen by more than 1% since Tuesday morning. The same could be said for the euro, which hit a one-week high despite lower than expected French industrial production figures for June. The EUR/USD rate continues to hold strong above the 200-day moving average and is putting to test very strong resistance levels at present. Going back to the Brexit decision, this morning investors come in with EUR/USD at a bit of inflection point and any gains should be duly noted by all. German and EU GDP figures to be reported Friday will be important for the single currency.
On Tuesday and into Wednesday, the big dollar was one of the biggest losers after it was revealed that non-farm productivity fell in the second quarter. The Labor Department reported yesterday that productivity, which currently measures hourly output per worker, declined at an annual rate of 0.5% from April through June. On news of this result, the US dollar was sold across the board, notably against the Euro and Canadian dollar. This is the third straight quarterly decline, which is the longest streak since the Carter administration. Later this morning, the US Energy Information Administration will release crude inventories for the first week of August. Following two straight weeks of gains, the market is anticipating a decline of 950k barrels for the week ending August 5th. Any greater decline and we could see another bounce in oil prices, which have rebounded sharply over the last three sessions.
Speaking of oil prices – the Canadian dollar continues to be mired within a very tight trading range, largely ignoring the recent volatility in the commodity markets. Yesterday’s fall in US nonfarm productivity pushed up the Loonie sharply at the greenback’s expense but the CAD$ has yet to break significant psychological levels. Technically, USD/CAD has been edging higher over the last few months with the pattern consolidating closer to a head. It could be difficult to see a significant break in either direction this week with such little news to grasp on, but it bears watching over the next few weeks. On Tuesday, another very strong housing number from Canada as housing starts in the month of July beat expectations and came in +198.4k. Tomorrow, June house prices will be released but such a backdated report could go unnoticed.
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