Canadian and New Zealand Dollars Get Whacked, While Greenback Consolidates

<br /> Canadian and New Zealand Dollars Get Whacked, While Greenback Consolidates – Marc to Market<br />


The US dollar has been mostly
confined to about a 30 pip range against the euro and yen in Asia and
the European morning. 
 Sterling is under a little pressure after a series of poor data, including
larger than expected falls in manufacturing and construction output, and a
sharp widening of the trade deficit.  However, here too ranges are narrow
as the outcome of the Bank of England meeting is awaited.  
The New Zealand and Canadian
dollars are stealing the foreign exchange show today. 
 The New Zealand dollar sold off hard after the
central bank softened its inflation forecast and discouraging speculation in
the market of a rate hike.  Officials played up the downside risks.
 The Kiwi was sold to fresh lows
since last June.  It is off 1.3%, the most since the US election last
November.  A break of $0.6800 could spur a move toward $0.6650.  
The Canadian dollar was spanked after Moody’s downgraded six banks
amid concern about exposure to an overstretched consumer.
  The Canadian dollar had staged a
recovery in North America yesterday and finished the session near the lower end
of its recent range (~CAD1.3640). Recall that since April 18, the Canadian
dollar has fallen in all but three sessions.  The news initially hit thin markets, and the US dollar quickly spiked
toward the week’s high near CAD1.3750.  The US dollar has drifted lower
and in the European morning eased toward CAD1.3700.  
Japan reported a larger than
expected current account surplus for March. 
 The JPY2.9 trillion surplus was the
second largest since 1996.  One of the most important characteristics of
Japan’s current account surplus, which is not always understood, is that it
does not primarily stem from the trade. Japan recorded a trade surplus on the
balance of payments basis of JPY866 bln.  Instead, the driver of Japan’s
current account surplus is from the
primary income account.  
Primary income includes coupons,
dividends, and profits from overseas investments.
  A weak yen flatters the value of its
overseas earnings, which in turn boost the current account.  Due to
different competitive strategies, and a host of other considerations, a weak
yen, as Japan has experienced, does not necessarily translate into greater net
Some observers had been concerned that North Korea’s threat to
test a nuclear missile would strengthen the yen, but the knee-jerk reaction had
been minor. 
 The dollar slipped to around
JPY113.65 yesterday and closed near its session highs near JPY114.35.
 Consolidation is the main characteristic today, with a large ($1.3 bln)
expiry of an option struck at JPY114.00 today.  The dollar is slightly
lower against the yen today.  It has fallen in only three sessions since
Macron won the first round of the French elections, or once a week for the
third consecutive week.  
It is not just the yen that
has shrugged off the threat by North Korea. 
 The South Korean won is up 0.7% and
is the second strongest emerging market currency today after the South African
rand.   Over the past five sessions, it is the only Asian currency to rise
against the dollar.   Korean shares rallied more than 1% to new record highs and helped lift the MSCI Asia-Pacific
Index 0.3%.  
The Bank of England
meets today. 
 It is widely expected to leave rates
alone.  However, Forbes, who dissented last time, is likely to dissent
again.  Her term is nearly up, and
she likely was not able to convince any of her colleagues.  Since the
BOE’s quarterly inflation report in February, growth has been a bit slower than
expected but inflation stronger.  We anticipate that the base effect of
sterling’s decline and energy prices will drop out of the year-over-year comparisons
in Q3.  This will likely take the
sting from inflation and leave the economy soft  
Today’s data was mostly
disappointing, but it is for March, and
with a softer than expected Q1 GDP already behind us, the new information was limited. 
 Suffice it is to say that industrial output and
manufacturing fell each month in Q1, and the decline was more than anticipated.  However, construction output was
considerably worse than expected.  The median from the Bloomberg survey
was for a 0.4% rise, but instead, it fell
0.7%.  To round out the disappointed,
the trade deficit swelled to GBP4.9 bln.  The median forecast was for a
GBP3 bln shortfall.  Some offset was seen
in the February shortfall that was revised
to GBP2.65 bln from GBP3.66bln.  
Sterling has been knocking
on the $1.30 area for three of the past five sessions. 
 There is a GBP320
mln option struck there that will be cut today.   It fell to almost $1.29 in
the European morning.  Additional support is
seen near $1.2880.  A break of $1.2850 though would be the first
indicator that the market may have given up on the $1.30 cap.  
Like yesterday, the euro is
spending today in the lower end of its
range since April 24. 
 There are roughly 2.7 bln euros of options struck at $1.0870 (~685 mln),
$1.09 (~1.3 bln ) and $1.0925 (~842 mln).    Interest rate
differentials between the US and Germany are flat with both the 2-year and
10-year spreads hovering around 2.0%.   Several technical considerations
converge in the $1.0820-$1.0830 area.  
The Bank of England will overshadow
the US report on producer prices.
reports on the US CPI and retail sales are understood as more important.   The US
S&P 500 has been reached record highs in two of this week’s three sessions
coming into today.  However,  note that it is up 0.34 points this
week.  The NASDAQ reached new record highs on Tuesday.  It is up five
consecutive sessions and seven of the past eight.  It is up about 0.5%
this week, which could be the fourth consecutive weekly advance.  


Canadian and New Zealand Dollars Get Whacked, While Greenback Consolidates
Canadian and New Zealand Dollars Get Whacked, While Greenback Consolidates

Reviewed by Marc Chandler

May 11, 2017

Rating: 5

Share this post

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on pinterest
Share on print
Share on email