The U.S. Dollar is trading in tight ranges against most majors, but thriving against commodity-based currencies after oil prices dropped with inventories higher than expected. WTI Crude oil fell below $50.0/barrel and prices are at their lowest since November 28. Equity markets all across the board dwindled, except in Japan, where the NIKKEI’s advances hurt the Yen’s value slightly.
We expect the greenback to close out the week on a positive note considering the pressures faced elsewhere in regards to political havoc, concerns over China, and slides across raw materials as well as metals. Investors will remain cautious until March 15th when additional borrowing costs by the Fed will be revealed. Odds of a hike are at exactly 100.0%. Jobless Claims and Continuing Claims remain at their lowest level in four decades, further strengthening the case for gradual interest rate increases.
The Euro is stronger this morning, climbing as European Central Bank President Mario Draghi paints a rosier picture for the Euro-bloc in his press conference. The ECB will continue to aid the economy with quantitative easing until the end of 2017, but the amount per month is now reduced to EUR 60.0 Billion. Although he credited energy costs for the good figures in inflation lately, the targets for 2017 and 2018 have been upwardly revised.
There seems to be some optimism behind Draghi’s assessment, especially when it comes to risks to the growth of the monetary union. Of course, we did not expect Draghi to comment on the instability around the periphery, especially in his home country of Italy. The reality is that ECB tools have done a good job, but we shall see if new leadership in member nations comes along to not just criticize the intervention, but denounce it and blow the entire mechanism to smithereens.
The Canadian Dollar has now erased all of its gains for the year, initially gaining when oil prices were up after the OPEC agreement to cut production. OPEC nations indeed agreed to curtail their output, but Russia and North American levels remain high, thus the reason for inventories being at an undesired high level for the industry. As a result, the “Loonie” has fallen 3.7% since reaching its best level of the year on February 3rd.
On top of the struggles with commodities, investors have lost faith in the CAD because of the dovish economic outlook set by Bank of Canada Stephen Poloz during the March 1st BOC meeting. In his words, the situation in Canada is one of “persistent economic slack.” Based on struggles in housing and anemic consumer growth, we see CAD very data dependent and weaker in the next few months.