The U.S. dollar held narrow ranges much of yesterday and overnight as the post-Trump dollar rally has waned and the greenback carves out new levels. Global equity markets rose on the prospect of extended stimulus from the European Central Bank, but the risk-on move did little to effect currency markets. The ECB is widely expected to extend its current quantitative easing program on Thursday, likely by additional 6-months. A longer extension would equal dollar strength against all of its European counterparts. However, the greenback is likely to fall if the ECB surprises investors and does not announce an extension.
The U.S. economic docket is light today with only the JOLTS Job openings print due out at 10 a.m. Eastern. The largest market event during our trading session is the Bank of Canada’s policy decision which is also at 10 a.m. Expect the BoC to keep rates unchanged at 0.5% so any volatility will likely be limited to the USD/CAD pair.
The British pound was the biggest loser overnight, falling over half a percent against the U.S. dollar. U.K. manufacturing unexpectedly dropped by 0.9% in the month of October; missing expectations for a 0.2% uptick. The sterling had surged to a 2-month high earlier this week as speculation mounted that the U.K. may be able to negotiate a “soft” Brexit and remain in the EU’s single market. Expect the sterling to remain captive by Brexit-related headlines as volatility gauges for the pound remain elevated. The British pound remains the worst performing major currency in 2016.
The Australian dollar bucked the trend of stronger commodity-based currencies overnight after poor economic data stunted the currency. The Australian economy contracted the most in eight years during the third quarter of 2016. As a result, traders have increased the odds that the Reserve Bank of Australia will find the scope to cut interest rates in the first quarter of 2017. Odds of a rate cut currently stand at 17%, up from 6.0% at the start of the week.