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US Dollar Finally Takes a Day Off

For the first time in more than a week, the US dollar is on the retreat after a furious advance against every major currency. The US dollar index has dipped back below 100 and markets took a breather giving some respite to everything from emerging markets to commodities. The euro, which had dipped below $1.05 on Wednesday, has bounced more than 1% overnight but parity remains the goal. With the ECB launching its 1 trillion bond buying campaign and Japan’s central bank actively printing money, the US Federal Reserve heads toward its first interest rate rise in almost a full decade.

Speaking of interest rates, Asian markets overnight were lifted as policy makers in South Korea slashed rates in a surprise move. This raises the number of central banks that have CUT rates to 23 and further puts into perspective exactly what is going on in the US from a policy standpoint. The Australian dollar is getting a boost today following a February jobs report that met expectations, as the country added 15.6k new jobs. Adding to the boost for the Aussie is the bounce in the commodity space, as oil prices have bounced more than $1 per barrel since yesterday’s lows. Elsewhere, in New Zealand, the RBNZ kept rates unchanged (say what???) at 3.50%as Governor Wheeler openly proclaimed his happiness with the level of the kiwi dollar.

In Europe, the focus remains on the euro which is in full on fire sale mode. Finally bouncing higher today at the dollar expense, any rally should be short lived as Euro bonds continue to get scooped up amid the central banks QE plans. A new wave of debt sales is expected to attract strong demand as ECB member Benoit Coeure stated overnight the central bank has purchased almost 10 billion euros of bonds in the first three days of its program, well above the pace needed to hit the 50 billion per month target. On the data calendar, German inflation paced markets as February numbers came in as expected, up 0.1% over the same period in 2014. Eurozone industrial production was down for the month in February but has increased 1.2% over the last year, adding to the euro’s bounce.

Here in North America, the Canadian dollar is finding some support one day ahead of their February jobs report. Tomorrow, the Canadians are expected to announce a slight decrease in new jobs following January’s massive number of 35k new jobs. Bouncing along with other “commodity currencies”, the Loonie has seemingly broken higher out of a consolidation pattern that plagued the currency since the start of 2015. In the US, it is weekly jobless claims day and this week’s number show a nice recovery off last week’s surprise +320k print. Only 289k Americans claimed unemployment benefits for the week ending March 6th but so far this number is having limited impact on the greenback, which remains in retreat mode. Additionally, retail sales in February were down 1.7% over the same period in 2014, which is quite a surprise for an economy that is supposedly adding 300k new jobs per month.

The next BIG event on the calendar is next Wednesday’s FOMC decision. Of course, no change is expected and rates should remain at current levels of 0.25%. Following Hilsenrath’s article yesterday in the Wall Street Journal that the Fed is expected the remove the “patience” language at June’s meeting, markets should remain cautious ahead of next week’s meeting. After this week’s furious dollar move, we could see a bit of a relief rally as investors and traders alike take some profits just in case Ms. Yellen and company decide to throw cold water on an overheating dollar.

Further reading:

US retail sales disappoint again – USD slides a bit

EUR/USD bounces up nearly 150 pips – just a necessary correction?