Daily Market Update

Dollar Slightly Weaker Ahead of Busy Week 

September 05, 2017

The U.S. dollar slipped yesterday during the Labor Day holiday against the majority of its G-10 counterparts. The greenback’s modest negative momentum has carried over into this morning’s session.

USD

The U.S. dollar slipped yesterday during the Labor Day holiday against the majority of its G-10 counterparts. The greenback’s modest negative momentum has carried over into this morning’s session. The short work week is packed with Fed speakers, economic data and central bank meetings abroad that could dictate the general direction of the U.S. dollar into the autumn.

At the time of writing, Fed member Lael Brainard is giving a breakfast speech to the Economic Club in New York. Early in his comments, Brainard said caution is warranted on further interest rate hikes. Although, he did say that the overall labor market is very positive. We will continue to monitor his sentiment. The Fed’s Kaplan and Kashkari hold events later in the afternoon.

This morning sees the release of factory orders and Durable goods. Orders for durable goods, or products meant to last three years or more, are expected to have gained 1.0% in July after falling 6.8% in the month prior.

 

EUR

The Euro initially fell overnight, before recovering quickly after European PMI fell to its lowest level since January of this year. Both services and composite PMI were finalized below estimates due to lower services data in France and Italy. Nevertheless, the headline event of the week will be the European Central Bank’s meeting on Thursday. While we do not expect any major policy changes, we will look for further indications that policy makers are becoming uncomfortable with the Euro’s persistent strength. We will also look for signs on when the central bank will begin to reduce their asset purchases. We think a December start to “taper” is most likely.

 

CAD

The Canadian dollar remains at elevated levels against the U.S. dollar and is within striking distance of a two-year high. The Bank of Canada is set to meet tomorrow and their interest rate decision is very likely to spark volatility. OIS puts the odds of a 25 basis point hike at slightly above 50%, meaning half of the market stands to be incorrect. A rate hike will send the “loonie” into stronger, higher ranges. However, failure to raise rates will cause the Canadian dollar to retrace much of its recent gains.

Regardless of whether the Bank of Canada raises rates tomorrow or decides to kick the decision down the road, expect tightening in the near future.

 

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