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Greenback Steady After China Eases Trade Impact – All Eyes on CPI

Currency-Market-Update-Thursday-2
Albert Edwards
by Albert Edwards on September 12, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD slightly stronger after China announced they will take more action to reduce the economic impact of the trade war. China said their latest round of tariffs (starting on September 17) will not apply to certain U.S. goods; however, the economy has slowed and caused the government to add new stimulus policies. China’s credit growth for August increased more than expected (due to monetary policy actions to increase business borrowing). Both sides have agreed to restart trade negotiations next month and markets will focus on any positive developments. Treasuries and futures are also strong to give USD more support. Brexit uncertainty and the risk of a no-deal, in addition to the European Central Bank’s dovish stance is limiting any USD strength currently. Meanwhile, producer prices for August increased 0.1% monthly (lower than expected 0.2%) and 1.8% yearly (also lower than expected 1.9%). Markets will focus today on the Consumer Prices report for August (expecting 1.8% yearly and 2.2% Core).

Canadian dollar highlights:

CAD stable as oil prices remained firm and Prime Minister Justin Trudeau dissolved parliament to start the election campaign. Federal elections will begin on October 21, however, both the Liberal and Conservative parties are not expected to win a majority. Markets are expecting a minority government with the NDP third. Meanwhile, OPEC warned its members not to increase production next year due to global economic growth concerns. CAD will continue to be vulnerable to fluctuating oil prices while the trade war continues.

EUR highlights:

EUR weaker as markets prepare for the European Central Bank to announce a rate cut and restarting the quantitative easing program. Central Bank President Mario Draghi is also under pressure to deliver a smaller stimulus package than expected and this will provide some support for EUR. Meanwhile, Germany’s economy entered a technical recession in Q3, and growth was downgraded. Germany represents 26% of the Eurozone economy. Industrial production for July also available today.

British pound highlights:

GBP stable, but vulnerable as markets wait for any Brexit development. Parliament is prorogued for the next 5 weeks (until October 14) and Prime Minister Johnson was unable to call an early election. Johnson’s next move is to try and finalize a deal with the European Union before the October 31 departure deadline, putting GBP under pressure. Otherwise, if Johnson can convince the European Commission to extend the deadline (again), GBP will strengthen.

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