After spending most of the month in a consolidative phase, the greenback is ending the month of March in a similar fashion to how it began, with broad-based underlying strength. While yesterday’s economic data out of the US was optimistic for future consumption given the solid rise in saving and income for the US consumer over the month of February, we would argue today’s rally in the DXY holds a greater correlation to the continued slide in oil prices and asset manager window-dressing prior to month end, as opposed to a more hawkish leaning towards Fed policy. Further progression in talks between the West and Iran in regards to the country’s nuclear program continues to ignite oil supply concerns amid the potential lifting of sanctions as a result of a successful deal, and thus have hydrocarbons extending their slide to three days, as front-month WTI crumbles into the mid-47s.
As the DXY accelerates from the mid-March a low, the euro is also retreating from recent highs, despite better than expected consumer price data released earlier this morning. EURUSD has slide into the mid-1.07s ahead of the North American cross, shrugging off the slower than anticipated decline in y/o/y CPI, with the basket printing at a 0.1% decrease, coming off the 0.3% decline experienced in February. As we’ve noted previously, while there have been some green-shoots of economic promise as of late in the eurozone, it will not be enough to throw into question reducing the amount and/or timing of the ECB’s asset purchase program, and thus we are still a ways off from the peak of monetary policy divergence between the Fed and ECB, leading us to argue the recovery in the euro is technical in nature as opposed to a shift in fundamental analysis.
Across the pond, election uncertainty in the UK continues to take its toll on the pound, clinging to session lows against the greenback despite an unexpected upward revision to the final GDP reading for Q4. Economic growth was revised up to 0.6% on the quarter and 3.0% on a y/o/y basis, yet Cable has been unable to generate any upward momentum and is close to giving up all of its mid-March bounce. Midway through the European session GBPUSD is pivoting around the 1.48 level, though the combination of a rising DXY and uncertainty around a coalition government is likely to keep a tight lid on any rallies in the pound.
As we get set for the North American open, the rising USD is taking its toll on equities, though the weakness in equity futures is also a result of profit taking after yesterday’s rally as month end bears down on participants. The loonie has managed to partially recover from another overnight wash-out as the deterioration in oil concrete-booted the commodity-linked currency early this morning. USDCAD has reversed course on the back of a better than expected GDP report out of Canada for the month of January, though the drop still has the pair pivoting in the mid-1.27s. While monthly GDP contracted by 0.1% compared to December, the median analyst estimate had been for a slide of 0.2%, and given participants had been positioning on the dovish side of estimates as a result of recent comments from the BoC, today’s number has led to loonie bears culling some of their weaker positions. Looking ahead, trade balance numbers for Canada now become the main focus for loonie traders as we enter the latter-half of the trading week, and though GDP growth in January was less soggy than expected, USDCAD still remains a buy on dips.
Further reading:
Canadian GDP falls 0.1% in January – USD/CAD slides from highs
AUD/USD hardly holds 0.76 – suffers from weak commodity prices, USD strength
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