US Dollar smashes yearly highs as commodities falter; CAD above 1.29
USD - US Dollar
Global growth concerns and a commodity collapse are pushing dollar to new highs for the year couple the current conditions with the Fed which is very much one of a glide-path to tapering, it looks like the demand for the dollar is here to stay. Pressure on the commodity currencies should keep the dollar generally supported. But if there is a risk that investors move squarely to a glass-half-empty proposition, e.g. as virus cases pick up in the US, then the chances of a broader equity correction build. For today, the US data calendar is very light - just Fed's Kaplan speaking- instead, we expect the focus to remain on the sell-off in the commodity complex and whether the Renminbi does indeed start to see a sharper sell-off. Expect DXY to stay gently bid, with 94.50 looking in the direction of travel.
CAD - Canadian Dollar
The CAD is getting crushed by a broadly stronger dollar and the 3%+ decline in crude oil prices with the fragile commodities and risk backdrop likely to continue to weigh on the currency in the near term. This week’s CPI print surprised to the upside in both headline and core terms but the CAD barely reacted to the print as high price gains are thought to be mostly temporary—for the Bank of Canada, at least. Still, the BoC should remain on track to conclude its QE programme around year-end and markets may soon begin to position more clearly for the bank’s announcement on Sep 8. This morning the CAD has broken the 1.29 level decisively. Today’s retail sales release may help to differentiate the CAD from its G10 peers but short-term weakness is likely to persist.
EUR - Euro
Normally a big sell-off in the commodity complex would hit the EUR. However, it has been finding a little support - along with the JPY - perhaps because of its newfound status as a funding currency. Yet any short-term strength, perhaps to the 1.1740/50 area in EUR/USD, would be position adjustment and again the direction of travel looks towards 1.1600 - and potentially 1.1500 in September. The Eurozone data calendar looks light ahead of the flash August PMI readings early next week.
GBP - British Pound
Another impact of the loss of confidence in the global recovery is the re-pricing of tightening cycles. GBP had been a beneficiary of a seemingly more confident BoE earlier this month but is now susceptible to that pricing coming out. With the risk environment staying fragile 1.3570 is a big support level for GBP below which losses may accelerate.
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