The U.S. Dollar traded sideways last night, continuing the trend from Monday.
Market participants were awaiting testimony from the new Federal Reserve Chairman Jay Powell. Powell is scheduled to speak in front of the House Financial Services Committee at 10 a.m. this morning but the text of his testimony was released at 8:30 a.m. The greenback has experienced modest widespread strength this morning following the release of his prepared testimony. In what seems familiar to what we would expect from Yellen, Powell held that he sees the need for further gradual rate hikes and that the outlook for the economy remains strong. He continued to state that what were headwinds to the economy are now tailwinds. Some had thought that Powell may indicate a more aggressive message on the interest rate outlook but that did not materialize. We still expect the Fed to raise rates another three times this year. The U.S. dollar’s gains were held back by weak fundamental data.
There was also a slew of data on today’s docket. Durable goods orders disappointed. Orders for business equipment unexpectedly fell for a second month, a sign that demand is cooling. Non-military capital goods orders excluding aircraft fell 0.2%, failing to miss estimates of a 0.5% expansion. Bookings for all durable goods fell 3.7%, worse than the 2.0% decline expected by economists. Later, S&P will release their house price index data.
The Euro trended slightly lower overnight after German regional inflation data was softer than expected. Political headlines will likely dominate trade the rest of the week. German Chancellor Angela Merkel is still working to form a government with the SPD party. Failure to come to terms would result in a minority Merkel government or new elections. Speaking of elections, Italy will hold their elections this weekend. Many analysts have indicated that there is no market consensus favorite. In addition, no one candidate is likely to win enough votes to have their own government so short-term political uncertainty could weigh further on the common currency.
The Canadian dollar continues to lose against its American counterpart. The loonie fell against the U.S. dollar yesterday meaning it has slipped six out of the last seven trading sessions. Overall, the Canadian dollar is nearly 2.5% weaker over the last 10 days.
The Canadian’s losses come even as the price of oil has recovered from its mid-month slump. OIS are pricing in a 50% chance of an April Bank of Canada interest rate hike. A firming of those expectations would allow the loonie to recoup some losses. However, ongoing slow NAFTA negotiations could spell trouble for the currency.