Currencies Correct Pre-Weekend Move

The US dollar was unable to sustain its pre-weekend gains despite an employment report that was generally recognized to be sufficient to keep the Federal Reserve on course to raise rates next month. However, the poor price action has not seen follow through dollar selling. A consolidative tone has emerged as the markets await this week’s keep developments, and especially the US retail sales and UK labor report. The eurozone reports industrial output and, more importantly, Q2 GDP estimates.

The poor news from China over the weekend; in particular the larger than expected fall in both imports and exports, has seen the dollar-bloc currencies give back more than the pre-weekend gains that we had expected. The Australian and New Zealand dollars are trading around half a cent lower. Initial support in the Aussie is the $0.7330-50. The Kiwi has seen a bigger retracement of its gains. A break of the $0.6550-60 warns of another half cent loss.

News that US rig count increased last week underscores the ample production, whereas the Chinese economic weakness plays up the softness of demand. China’s oil imports on volume terms continues to hold up as refiners boost purchases. Oil prices extended their pre-weekend losses, and this help lift the US dollar back toward CAD1.3180 after seeing a low near CAD1.3050 before the weekend. 

The euro itself has been confined to almost half of a cent range. The break of $1.0940 would signal a further push back toward $1.0900.  However, with the SNB threatening continued intervention, and the dollar bulls a bit frustrated by the lack of favorable price action following the jobs data, the market does not appear to be in an aggressive mood. 

Sterling has a somewhat heavier tone, and it has been confined to half a cent range. The market had been leaning the wrong way on the BOE and the adjustment to the signal that there is no urgency for the BOE to raise rates. The $1.5470 level, which it is straddling in late London morning turnover, may act as a pivot. A close below it would likely signal additional near term losses.