Dollar-Bloc Currencies Firm on Longs and Short Covering

The US dollar is trading softer though largely within yesterday’s ranges against the major currencies. The rally in equities carried over into Asia but European markets are narrowly mixed, and US shares are trading lower.  Bond yields are mostly higher though US Treasury yields are paring yesterday’s push higher. 

The US dollar is trading softer though largely within yesterday’s ranges against the major currencies. The rally in equities carried over into Asia but European markets are narrowly mixed, and US shares are trading lower.  Bond yields are mostly higher though US Treasury yields are paring yesterday’s push higher. 

The dollar-bloc continues to firm.  Some attribute this to new carry plays in the wake of the Fed’s decision to stand pat last month.  However, as the positioning the futures suggest, the gains are not simply participants going long these currencies, but also covered shorts. 

The Reserve Bank of Australia kept rates on hold today, as widely expected.  The statement was not particularly dovish, suggesting the bar is high to a rate cut this year.  The RBA cited improvement in the labor market.  Separately, Australia reported a larger-than-expected trade deficit (exports flat, imports up 1%).  This shows Australia is still struggling with the terms of trade shock.  The $0.7150 area is the next major hurdle. 

The New Zealand dollar is slightly firmer as the market awaits the global dairy auctions amid expectations of higher prices.  The $0.6530-$0.6550 area caps the upside.  Sentiment toward the Canadian dollar was help by the recent economic data indicating the economy has returned to a growth track (June and July) after contracting for the first several months of the year.  Today’s news may challenge its ability to recover much more.  The trade deficit expects to widen sharply in August and the IVEY survey expects to soften. Initial support for the US dollar is near CAD1.3050.  The nearby cap is in the CAD1.3100-CAD1.3120 region. 

German factory orders disappointed.  They fell 1.8% in August.  The market had expected a 0.5% increase.  Adding insult to injury, the July series revised to a 2.2% decline rather than a 1.4% fall.  Domestic orders fell 2.6% in August.  Foreign orders fell 1.2%, but a strong 2.5% increase in orders from the Eurozone mitigated the drop.  The euro eased less than a quarter of a cent on the news. 

In addition to the Canadian data, the North American session features the US trade figures and two Fed officials (George, a hawk, and Williams–after the markets close).  The newly introduced flash merchandise trade report already warned of a large shortfall, with weak exports. Confirmation may pose headline risks but not contain much new information.  It will support the consolidative tone.

Turnaround Tuesday Morphs into Consolidation is republished with permission from Marc to Market