Market watch - 23rd August 2019
The Dollar is trading softer versus most of its rivals except the commodity group as risk aversion set in after Fed Chair Jerome Powell’s speech from the Jackson Hole Symposium coupled with news of additional Chinese tariffs in retaliation to US policy directed at them. Powell stated the US economy remains strong but warned of significant risks on the horizon. Meanwhile, Chinese officials announced new tariffs on some $75 Billion in US goods along with renewed tariffs on US autos. Domestic equity markets are trading broadly lower while the 10-year treasury yield is at its one-week low in striking distance of its 36-month low form just eight days ago on 15 August.
The Buck rallied to its fresh 8-day low with the Euro and Swiss Franc after touching a three-week high against both currencies earlier today, GBPUSD rose to its 25-day peak this morning, while the Dollar fell to its 11-day low against the Yen on increased risk aversion. The Greenback is trading very close to its two-month high with the Loonie, hit its 9-day best with the Aussie Dollar and is close to its three-week high against the Kiwi as the commodity currencies sold off, while USDMXN touched a fresh 8-month peak and USDCNY hit a fresh 11.5-year high today.
The Canadian Dollar is trading lower across the board as risk-off weighed on the commodity group and WTI crude oil dropped to a two-week low despite better than expected data this morning. Retail Sales MoM was released at +0.0% headline and +0.9% Core versus +-0.3% and -0.1% forecast respectively while Corporate Profits QoQ was +5.2% which is much better than -0.3% previous. USDCAD is trading close to its fresh two-month peak from Tuesday morning, EURCAD touched its eight-day high today, while CADJPY hit a fresh seven-month low amid risk-off. Canadian GDP MoM is scheduled for next Friday morning ahead of the key Bank of Canada (BoC) meeting on 4 September. Market participants will be watching to see any hint of dovish language from BoC Governor Stephen Poloz and company.
The Euro had an interesting ride today as EURUSD hit a fresh 22-day low this morning to rebound to an 8-day high as the single currency benefited from traders selling the Buck and commodity currencies. The Euro also managed its fresh eight-day peak with the Loonie but fell to a fresh 28-month low versus the Japanese Yen amid risk-off trading. Market participants are watching political developments form Italy as the President is giving Parliament until Tuesday to form a new government. League Leader and Interior Minister, Salvini, is looking for a snap election, while the 5 Star Movement Party is exploring the possibility of a coalition with the PD’s Renzi (Italy’s Democratic Party). So far, the market is looking for a positive outcome as spreads are tightening. We also have the Group of Seven summit in France from Saturday which could rattle the currencies. The European Union hopes to ease tensions with the United States to avoid punitive tariffs on EU autos.
The British Pound is trading at its 25-day best with the Dollar on news yesterday that German Chancellor Angela Merkel is open to seeking a solution to the Irish Border impasse with the new UK government before the 31 October Brexit deadline. This suggests that the market is short on sterling as such market rhetoric was able to push GBPUSD up some 1.5% yesterday. This is especially true when considering more negative comments from the French President Macron, which did not seem to have too much of a detrimental impact on the Pound yesterday. Watch out for any sign of a breakthrough in Britain’s efforts to convince the European Union to renegotiate the deal as it is likely to send the Pound rallying.
The Japanese Yen and Swiss franc are both significantly higher today on risk-off, while the risk-weighted Aussie, Kiwi, and Mexican Peso were all lower on the same factor. The USDCNY rose to its 11.5-year peak as the US-China trade situation is deteriorating further as China has announcement a new round of retaliatory tariffs against the US including $75B in goods in addition to renewed auto tariffs. Japanese National Core CPI YoY was released exactly on target at +0.6% overnight which also matches previous, New Zealand Retail Sales QoQ was +0.1% better than expected yesterday evening at +0.2% headline and +0.3% core.