The US dollar is ending the week on a high note following remarks from FED Chairman Yellen on Thursday. After falling to its lowest level in almost a month last week, the greenback is surging as Ms. Yellen’s comments made it clear the FED is prepared to hike rates in 2015. Her speech in Massachusetts ended three down days and sparked a share rally as global equities ended in positive territory. Following the Fed’s hold decision last week, Chairman Yellen is asking world markets not to lose faith in the belief higher rates are in the cards for this year.
Japanese data paced the Asian session, as inflation numbers were in line with market expectations, showing a slight fall in prices during the month of August. The yen, which had been one of the biggest losers to that point, lost a bit more ground and remains depressed as North America begins trading. Mr. Aso, Japan’s Minister of Finance, added comments that at this point, no additional policy easing was needed. While it has been a quiet week for Chinese economic releases, there were some interesting comments on Friday from a member of China’s National Bureau of Statistics. Sheng Laiyun, defending the accuracy of Chinese data, stated that growth should maintain the 7% threshold in Q3 as widespread criticism has many believing China’s economy may be worse off than reported. Third quarter GDP will be unveiled on October 19th.
Riding the optimistic wave, European shares ended the week in positive territory following several days of losses. There were some rumblings on Thursday that the emissions scandal that rocked VW could be spreading to renowned German automakers BMW and Mercedes-Benz, but those reports were refuted, and Germany’s DAX closed a very volatile week up three percent. The euro, which was sold following yesterday’s NY close, remained on the defensive following data releases that showed money supply in mainland Europe slowed during the month of August. While lending to households and corporations increased last month, the pace of growth in money circulating in the EU slowed. Looking ahead to next week, markets will get a better indication of the relative health of Europe’s recovery with business and consumer sentiment indices, inflation and employment data all slated to be released.
The dollar rally, ignited yesterday by Chairman Yellen’s comments, remains the strongest versus a basket of currencies as North American trading kicks off. As indicated above, the greenback had fallen to a one-month low after the Fed’s decision to hold rates at all-time lows last week, causing some investors to push back expectations for a rate hike into 2016. But yesterday, speaking in Amherst, Massachusetts, Fed Chairman Janet Yellen said as long as inflation and employment remain stable, the FOMC may have to move on rates to prevent the economy from overheating. This morning, the final revision to Q2 economic growth showed a 3.9% expansion for the world’s largest economy. This news bests results showing an originally reported 3.6% advance and tells me that maybe Janet was on to something yesterday afternoon when making her speech at the University of Massachusetts. The US dollar has risen a bit more in the wake of this release.
The Canadian dollar looks poised to close out the week at multi-year lows. Oil prices, which had recovered a bit yesterday following Wednesday’s sharp sell-off, were slipping again overnight in the wake of Chairman Yellen’s comments. As commodity prices around the world are priced in terms of US dollar, the greenback’s rise has stopped any oil rally crude prices struggle to maintain the $45 per barrel mark. With little economic data slated for next week, Loonie price action shall remain pinned to the broader market. Following Yellen’s comments, the Loonie’s inability to rise on the back of weaker US data, has some eyeing even higher prices for USD/CAD as we push into Q4 next Thursday. Good luck and have a great Friday.
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