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Dollar Hits Highs On Fed Guessing Games

Dollar Hits Highs On Fed Guessing Games

Jan 20 2014, 9:23am CST | by

Despite their mixed fortunes the equity class continues to reign supreme, driving both foreign exchange (forex) and most fixed-income positions, as the U.S. dollar starts this holiday-shortened...

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27 weeks ago

Dollar Hits Highs On Fed Guessing Games

Jan 20 2014, 9:23am CST | by

Despite their mixed fortunes the equity class continues to reign supreme, driving both foreign exchange (forex) and most fixed-income positions, as the U.S. dollar starts this holiday-shortened trading week sitting atop a two-month high. Last week, investors managed to shift their collective attention to the increasing flow of stateside earnings reports and found them mixed — a result that had equity prices ending the week where financials were hardest hit. This is in contrast to the Asia-Pacific region, where most bourses are down for the first half of January. In Europe, equities have continued last year’s climb, boosted by investor optimism over economic growth prospects in mainland Europe and the U.K.

So far this morning, European markets have managed to open broadly lower in concert with Asian markets, after slowing Chinese economic growth data was confirmed (fourth-quarter gross domestic product +7.7%). The headline GDP print was a fraction ahead of forecasts, and certainly not enough to brighten the general mood of risk aversion. Other data released showed that industrial output grew an annual +9.7%; slightly below estimates while retail sales met expectations (+13.6%). As the U.S. celebrates Martin Luther King Day, the forex market is expected to remain subdued, with liquidity again trading at a premium.

Chinese Economy Dodges Growth Low

Now that China’s GDP growth has nearly fallen to its slowest pace in 14-years, what’s next for the world’s second-largest economy? Many appear to be divided into two distinct camps: those who see a continued growth deceleration towards +7%, and those who expect a pickup to above +8%. The discrepancy is due to a number of factors. The biggest includes the extent to which reforms undertaken at China’s Third Plenum last November will impact domestic economic growth, and the degree to which China will benefit from the pickup in global demand. No matter what, surprising data out of China will always bring market volatility and trading opportunities. The Aussie managed to print a three-and-a-half year low below $0.8760 before rebounding, while the yen posted moderate gains and hit a one-week dollar low below $103.90.

The greenback’s two-month high is supported mostly by last week’s upbeat data that convinced investors the Federal Reserve is going to continue its gradual withdrawal of stimulus. It seems that the market is happy to buy into the theme that signs of an improving labor market (assuming last month’s nonfarm payrolls report was a weather-hindered anomaly) justifies further reductions in the Fed’s monthly bond purchases. Interest rate disparity favors a higher dollar, especially now that the European Central Bank speaks in a dulcet dovish tone. Later this week investors will get to see whether the Bank of Canada (BoC) and the Bank of Japan (BoJ) will change their respective monetary policies.

Traders Eye Bank of Canada Rate Call

BoC Governor Stephen Poloz’s monetary policy has triggered a -6% decline in his own country’s currency against its largest trading partner, the U.S. No one seems worried about the recent movement, apart from the CAD bulls, as long as the currency trades at “appropriate levels given the various economic realities.” Last October, the BoC governor happened to remove the bank’s hawkish bias, a bias put in place by the previous Governor, Mark Carney, 12-months prior. This has removed a market license to support the currency that has since printed a four-year low late last week.

For many analysts, shortening the CAD outright is considered one of the go-to trades for this calendar year. However, few expected the currency to have weakened so quickly so early. No matter, by midweek the BoC is expected to put the loonie directly in the speculator’s crosshairs. The currency could come under further pressure if Poloz signals the need for lower interest rates by using rhetoric rather than action, an indirect approach to boost economic growth by devaluing the currency. Focusing on the downside risk to deflation, and insisting that there is no housing bubble, will again have the loonie on the back foot. The market remains a better buyer of USD on pullbacks.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Source: Forbes Business

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammudd ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Sel ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2. ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minis ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramada ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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