Category: Daily Look

Currencies pressured down under



The Aussie was looking decidedly weak yesterday, having been pushed lower by a combination of weak iron ore prices (down more than 6% in Sep) and softer domestic data. The reaction to the much better than expected employment data overnight (initial 50 pip gain unwound) is indicative of the fact that few seem to be willing to buy the currency at these lower levels. The strong 121k rise in headline employment helped the unemployment rate move down to 6.1%, after then sharp rise to 6.4% seen last month. This has at least sunk the fear that the Australian labour market is slowing down sharply. But the fact that the Aussie has not seen sustained gains much on the news reflects the weaker underlying sentiment and downward force coming from commodity price developments.

It also remains the case that the central bank believes that the currency remains over-valued on most measures, as is the case with Zealand, where rates were kept steady at 3.50% overnight. In the accompanying statement, the RBNZ said it expects significant further depreciation of the currency, which was partially delivered by the market in the wake of the decision, with the kiwi down 50 pips and below the 0.82 level. Elsewhere, sterling has continued its partial recovery after yesterday, which was labelled ‘black Wednesday’ for the yes campaign in Scotland. The economic consequences of Scottish independence took centre stage, with many companies outlining their contingency plans and/or intent to move out of Scotlandin the instance of a yes vote. Still, the vote remains a little too close to call, so sterling is likely to remain volatile over the coming week and measures of underlying volatility will continue to be elevated.

Further reading:

EUR/USD Sep. 11 – Back to the lower range ahead of Draghi

US Dollar Index at critical resistance, posing downside risks

The basis for increased volatility

The basis for increased volatility

The past 24 hours have seen some key moves in FX, most notably on the yen which has weakened further and taken USDJPY above the 106 level and more decisively above the tight range than has held so far this year. This could well bring some greater conviction to those pushing for a weaker yen,

US dollar dominates

US dollar dominates

The dollar rally that commenced in earnest just over two months ago seems to be gathering pace at the expense of many dollar denominated commodities such as gold and oil. Brent crude oil is a remarkable one as it has dipped back below the $100 level for the first time in over a year, down

Scottish independence referendum weakens the pound

Scottish independence referendum weakens the pound

The pound has weakened significantly during the Asia session on the back of the latest polls suggesting that the upcoming referendum on Scottish independence could be won by those wanting Scotland to separate from the United Kingdom. Polls have been narrowing in recent weeks, but the weekend’s Sunday Times poll was the first to give

ECB cuts rates to escape deflation

ECB cuts rates to escape deflation

Yesterday was a turning point for the single currency, as the ECB finally showed that it was serious in tackling the risk of deflation in the eurozone. EURUSD saw its biggest one day percentage fall for nearly 3 years, as traders and investors capitulated. The measures were in some ways modest (0.10% cut in rates,

ECB meeting takes center stage

ECB meeting takes center stage

All eyes of the ECB today and one can’t help thinking “we’ve been here before”. It seems that in the run up every ECB meeting in the past few years, in fact ever since Mario Draghi said famously that he would do “whatever it takes”, there’s been a build-up of expectation that something major will be announced

Strong gains in US manufacturing sector

Strong gains in US manufacturing sector

Sterling was swimming against the tide yesterday despite an attempt at making some modest gains early in the day yesterday following construction data that showed the sector was seeing its strongest conditions since 2007. The narrowing of the Scottish referendum poll meant the pound was always going to face a considerable headwind and GBPUSD was also not

Dollar gains traction

Dollar gains traction

The dollar is creeping higher once again this morning as it hit a new 12 month high overnight with the trend higher looking day by day to become more entrenched. The Aussie dollar has been one to suffer the most following last night’s RBA rate decision which saw the central bank keep it interest rate

Looking for FX divergence

Looking for FX divergence

Ultimately, what FX markets need is policy divergence between central bank policies of different currencies. We’re not quite there yet, because most of the debate is surrounding QE (ending or starting) and the potential for rate hikes (in the US and UK) more likely in 2015. This will likely remain the case this week as

Markets await ECB action

Markets await ECB action

We come to the end of a week that has been mixed for the dollar overall, with loses vs. the CAD, JPY and Aussie, but gains against the euro, kiwi and (marginally) the Swissie. The pressure on the euro has been understandable given the change in tone from the ECB President seen at the end