Daily Roundup – Markets review
Downside pressures on the US dollar were increased yesterday after Fed Chief Jerome Powell reiterated the line of patience being necessary over the timing of the next rate hike. He also expressed concern over the spiralling level of US debt, which has reached abnormal levels for periods of economic growth and this is arguably something that will be worth watching in the months ahead. Whilst an over-leveraged country may store up problems for future generations, it would also have the ability to weaken the US dollar, something which would meet with the short term ambitions of Donald Trump.
The next chapter in this saga will be the December US inflation reading which is due for publication at 1.30pm GMT today. This is expected to come down to 1.9% which would essentially be bang on target. Cheap oil at the end of last year will apply some downward pressure here, but the bigger concern could be the pace of decline and how the Federal government shut down – with workers not being paid – will impact the January figure. Anything below expectations may have the potential to see the dollar further rattled before the weekend break.
Despite those earlier downward revisions to the economic outlook by the Bank of Canada, the Loonie is continuing to find supporters. The rebound in oil prices and political disarray in the US suggests that CAD could offer some meaningful outperformance in the medium term. USD/CAD has fallen by more than 5 cents since the start of the year, having now staged more than a 50% retracement from the Q4 rally.
Optimism over global trade talks and some better than expected retail sales readings have helped drive the Aussie dollar a shade higher once again, too. AUD/USD has now added around 2.5 cents since the start of the year, with a return to the December highs towards 0.7400 now being eyed. With a data light week for the Aussie lying ahead, there could well be a tendency for the currency to continue its drift higher, especially if there’s no change in sentiment from the US.
There’s an ascending triangle being formed on EUR/USD, which has the potential to see gains up to recent resistance around the 1.1570 level.