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Dollar Doldrums

by Sean Coakley | August 17, 2016

Some of the pain felt by those long the US dollar has begun to recede as the mighty greenback begins to stabilize after a rough few days. With inflation, or the lack of it rather, becoming a major turning point for dollar traders this week as the number failed to hit expectations, the stage is set for further movement later today after traders get the chance to parse the FOMC`s meeting minutes for any signs of an impending rate rise.

With trading in Asia winding down, the yen has been one of the leading decliners against the stabilizing dollar. This obviously has alleviated some of the pressure placed on the BoJ as earlier the bank signaled concern around the relative strength of the yen and its impact on the export sector despite the unprecedented level of monetary stimulus currently being conducted in Japan. Looking further south both the Aussie and Kiwi dollars took knocks against their American counterpart while employment and wage data in NZ came in better than expected. Outside of forex, markets are shrugging off the hit taken by Wall Street as equities across Asia flash green.

Moving onto Europe, Brent crude has begun to slip as traders take profits off the back of its recent rumour-fuelled run higher while equities across the region are trading on a down note. With the greenback stabilizing the pound is one of the few currencies showing signs of life against the cross while its continental companion slides against both it and the US dollar. Much of the strength in the pound can be attributed to recent payroll and wage data that more or less met expectations despite concerns around a decent into post-Brexit malaise.

Ahead of the open stateside, equities futures are signaling that the declines seen yesterday are likely to continue once equity markets start trading. With rapidly shifting expectations concerning the timing of the Federal Reserve`s rate rise being the single largest driver of the recent volatility in the US dollar, there is growing risk that the probability of another rate increase before the end of 2016 is being discounted.  That said the release of the Fed`s meeting minutes along with US oil inventories later today is likely to grant traders the data points they need to calibrate their assumptions, with a more hawkish than expected  Fed along with continued record inventories likely spelling a world of pain for the Canadian dollar.

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