Home The greenback remains flat

The holiday hangover effect is permeating through financial markets this morning, with traders in North America returning back to their desks after the long weekend only to find a heavy offer tone filtering through Asia and Europe.   The catalyst for the pessimistic tone during the overnight Asian session was the release of dreary trade balance data from China in September, adding to concern that when GDP figures are released on October the 19th third quarter growth will slip below the 7.0% target.   The official trade surplus for September ballooned to $60.34bn in the month of September, which was a result of imports collapsing by 20.4% from a year earlier, much worse than the 15% that had been expected and the 13.8% decline posted in August.   The sting of the sluggish domestic demand numbers was somewhat mitigated by the fact that export values declined by less than forecast, posting only a 3.7% slide as opposed to the 6.3% drop analysts had been expecting.   The trickle-down effects from the devaluation of the yuan might be starting to seep into the numbers, though it does show a mild improvement in external demand from China’s main trading partners.   After posting a strong session on Monday, the Shanghai Composite finished its session essentially unchanged, while the Nikkei was off just over 1.1%.

Oil is having a hard time eliciting supportive bids this morning, trying to find some solid ground after the cascading price action from Monday took front-month WTI from the $50 level to below $47.   The International Energy Agency (IEA) released a report detailing the oil market would remain oversupplied through 2016 on the basis that demand would slow next year and reduced sanctions on Iran would bring more supply to market.   This comes after Monday’snews that OPEC increased oil supply by 90k barrels per day during the month of September, consistent with the IEA’s forecast that Saudi Arabia and Iraq will continue to focus on securing market share.   The air pocket the hydrocarbon market has hit this week is spilling over to the currency market, with the Canadian dollar, the Norwegian Krone, and the Russian Rouble all moving sharply lower.   Despite the Bank of Canada’s Governor Stephen Poloz optimistically saying over the weekend that the strengthening of the US economy is having the expected effects on Canadian exports, the loonie is taking its cues from oil today and is down close to 1% against the greenback relative to Friday’s close.

As we get set for the North American open, equity futures are stumbling into the open, while the greenback remains relatively flat as referenced by the DXY basket.   The uninspired performance from the greenback is despite comments over the weekend from Lockhart of the Federal Reserve that employment reports showing over 100k jobs created per month is likely enough to keep pushing the unemployment rate down giving the sagging participation rate from the impact of retiring baby boomers.   We had previously argued with the unemployment rate nearing the bottom of the Fed’s estimate of full employment the market will have to adjust to what the Fed now considers a weak employment report, and how that will factor into monetary policy decisions.   While each committee member will have their own forecasts for what a strong employment report is given changing demographics, this reassessment from Lockhart is important on the basis the market’s downbeat assessment of the last two employment reports.

Further reading:

GBP/USD hit hard – 3 reasons

German ZEW Economic Sentiment dives to 1.9 – EUR/USD follows

Scott Smith

Scott Smith

Scott Smith is a Senior Corporate Foreign Exchange Trader with Cambridge Mercantile Group and has a diverse background in the foreign exchange industry, with previous experience in both credit and trading related functions. Scott holds a Bachelor of Commerce degree from the University of Victoria, has completed all three levels of the Chartered Financial Analyst designation, and is currently working towards the Derivative Market Specialist certification offered through the Canadian Securities Institute. Cambridge Mercantile Group.