With a flurry of data releases that have missed expectations and a GDP growth figure that only just met policymaker’s soft 7% GDP target, all eyes were on China overnight, as trading in Asian equities kicked off today’s session. As the world’s second largest economy contends with a slower growth trajectory in its transition from growth based on continuous investment in fixed assets to a more balanced growth model, equities in Japan, China and Australia are posting losses. With its economic fortunes closely tied to China, the Aussie dollar has taken quite a knock in response, trading sharply weaker versus the buck.
After yesterday’s rebound, the euro has given up about a half cent against the dollar and is trading lower prior to opening of the North American session. With yesterday’s price action in the common currency largely attributable to broader weakness in the US dollar, today has seen a return to the status quo of relative European underperformance. Today’s movement in the euro is set against a backdrop of continuous strength in European equities as the FTSE Eurofirst trades at 15-year highs as investors shift to equities in a scramble for returns in an environment of meagre bond yields. With the ECB having effectively committed to maintain the course on its asset buying program during today’s policy decision meeting, it is likely that current trends in the performance of European equities and relative weakening in the euro are set to continue.
In response to a slew of economic data indicating weakness in the American economy, yesterday had the greenback trading on a sharply weaker footing relative to its peers and especially the Canadian dollar. Hitting the bottom of its recent trading range versus the loonie, the USD reacted strongly to retail sales and inflation data that missed expectations. The latest data resulted in an outsized response largely because it contrasted with a widely accepted narrative that much of the softness in tier one data out of the United States during Q1 was due to inclement weather. Now that spring is here and the weakness in economic data has not abated, it calls into question the veracity of this narrative – with the obvious implication being that expectations for the timeframe of a rate increase on the part of the Federal Reserve may be pushed back. Against this background, we have the US dollar trading higher against the loonie with the rest of today shaping up to be an exceptionally volatile day for the pair as the Bank of Canada prepares to set the overnight rate later this morning and release its monetary policy statement. While we do not expect a substantial deviation in policy, an air of uncertainty abounds, and as a result we do expect heightened two-way volatility in the pair as the market searches for meaning in the tone of the press conference. Throw in the release of the Fed’s beige book, and data points on capacity utilization and industrial production in the United States, and the stage is set for a very eventful day.
Further reading:
Determined Draghi live blog – attacked by protester – no policy changes
ECB leaves negative deposit rate unchanged
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