- The US dollar’s three-day losing streak came to an end on Thursday as investors finished pricing in Yellen’s dovish comments
- The Fed rate path was largely overestimated and this is why we believe that financial markets have still not fully priced in the weakness of the US economy. We believe that no further rate hike will take place this year
- We target an exchange rate of 1.2900 for the USD/CAD over the next few days on oil prices stabilization. We do not believe that today’s Canadian data will have a major impact on the CAD
- GBP/USD may have lost its momentum as it starts to quickly reverse gains, on the upside a resistance can be found at 1.4459, while on the downside a support lies at 1.4057
- AUDUSD, a bearish reversal seems the most likely scenario, especially with the commodity rally running out of steam
- The New Zealand dollar continues to test the 0.6897 resistance, however we remain cautious on the pair, especially considering the dovish stance of the RBNZ and the faltering commodity rally
The US dollar’s three-day losing streak came to an end on Thursday as investors finished pricing in Yellen’s dovish comments. The dollar index stabilised at around 94.92, unable to break the strong support lying at 94.57 (low from March 18th). EUR/USD printed a fresh 1-month high, reaching 1.1365, after ADP figures showed that US companies created 200k jobs during the month of March, beating median forecast of 195k. However, the previous figure was revised lower to 205k from 214k. Tomorrow’s NFP is expected to come in at 205k. Overall, it seems that the market is paying less and less attention to data from the job market, following the footsteps of the Federal Reserve and thus focusing on inflation data and global financial markets’ development. GBP/USD also lost momentum as it started to quickly reverse gains. The cable slid 0.80% from yesterday’s high to 1.4340. On the upside, a resistance can be found at 1.4459 (high from March 30th), while on the downside a support lies at 1.4057 (low from March 24th).
Crude oil went under renewed selling pressure in New York yesterday amid concerns over supply glut - since the beginning of the year US inventories have kept increasing at a solid pace. US stockpile increased 2299k last week missing the median forecast of 3100k and below the previous reading of 9357k. Since yesterday afternoon, the West Texas Intermediate tumbled 5.20% to $37.74 a barrel, while its counterpart from the North Sea, the Brent crude, slid $1.80 to $38.80 a barrel.
Commodity currencies were therefore for sale in Asia. The Australian dollar fell 0.30% against the US dollar to $0.7670 and was unable to break the 0.7680 resistance to the upside. A bearish reversal seems the most likely scenario, especially when you consider that the commodity rally is running out of steam. The New Zealand dollar is still testing the key resistance that lies at 0.6897 (high from October 15th). A clear break will be needed to revive the rally; however, we rather remain cautious on the pair, especially considering the dovish stance of the RBNZ and the faltering commodity rally.
In the equity market, Asian regional markets went through a tough session with most regional indices blinking red across the screen with the exception of mainland Chinese equities, which managed to stay in positive territory. The Shanghai and Shenzhen Composites rose 0.11% and 0.29% respectively. In Japan, the Nikkei slid 0.71%, while the broader Topix fell 0.67%. In Hong Kong the Hang Seng fell 0.43%. In Europe, the picture is not much brighter as all equity futures are trading in negative territory.
Yann Quelenn, market analyst: “Loonie continues to move higher: Crude oil prices are now stabilising and providing some relief to the loonie with most Canadian revenues depending on the black commodity. Yet, the currency is still trading at low level. Early this afternoon, January's GDP data will be released. Consensus expects a print at 0.3% m/m, above prior December data at 0.2% m/m. However, since January, overall economic conditions have evolved and today’s data will not reflect the commodities improvement. Crude oil prices have sharply bounced and gold surged. As a result, we do not think that today’s information will have a major impact on the Canadian currency. Nonetheless, we believe that in the medium-term, pressures are bearish on the USD/CAD. Key drivers of the pair, are mostly commodity prices and U.S. monetary policy. As we continue to reiterate, the Fed rate path was largely overestimated and instead of four rate hikes, markets have only priced one or two. With this in mind we believe that financial markets have still not fully priced in the weakness of the US economy and we think that no further rate hike will take place this year. As a result upside pressures are set to continue and we target an exchange rate of 1.2900 for the USD/CAD over the next few days.”
Today traders will be watching GDP from Canada; mortgage approval and GDP from the UK; CPI estimates from Italy, Spain, France and the euro zone; trade balance from South Africa; initial jobless claims, ISM Milwaukee and Chicago purchasing manager index from the US.