The US dollar did not have a good week. That is despite firming US Treasury yields and five consecutive gains in US equities. The de-coupling of the US dollar from higher interest rates has analysts scrambling for answers. A popular theory is that rising global growth is at an earlier stage in the cycle than the US suggesting more upside offshore. Global central banks are getting ready to start, or have started, monetary policy normalization, while the US is closer to the end. Other analysts have dusted off the “twin-deficit” theory to explain the greenback’s weakness, pointing to current account and budget deficits. Another explanation offered is that the US administration is encouraging a weaker currency to help address trade imbalances.
The US dollar was under pressure in Asia although liquidity was reduced because of the start of the chinese New Year holidays. AUDUSD firmed, supported by upbeat remarks from RBA Governor Lowe on the outlook for the domestic economy. NZDUSD gained after NZD Business PMI climbed to 55.6 from 51.2
USDJPY dropped from 106.33 to 105.55 but recouped almost all the losses by the New York open. Bank of Japan Governor Haruhiko Kuroda was reappointed for another five-year term.
The US dollar retraced Asia losses in Europe. ECB Council member Benoit Coeure didn’t seem very concerned about recent equity market weakness. End of week profit taking took EURUSD from 1.2554 to 1.2475 when New York opened.
Sterling’s rally in Asia was reversed in Europe when UK Retail Sales data disappointed January Retail Sales only rose 1.6%, below the 2.6% consensus guess but a tick higher than the December number. GBPUSD dropped from 1.4143 to 1.4066 where it is trading in New York.
The antipodean currencies retreated from their Asia peak but still managed to open in New York above yesterday’s closing levels.
USDCAD was an after-thought, and it drifted in a 1.2452-1.2486 range. Rising WTI oil prices aren’t helping matters, but not hindering prices either. Canada Manufacturing Shipments data is due this morning and expected to rise 0.2%.
US data releases include January Housing Starts, Building Permits Import/Export prices and Michigan Consumer Sentiment. Strong data could trigger a wave of profit taking US dollar buying, especially after the gains this week.
USDCAD Technical outlook:
The intraday USDCAD technicals are bearish below 1.2510, looking for a break below 1.2440 to extend losses to 1.2250, although support in the 1.2390 will slow the losses. A break above 1.2560 will shift the focus to 1.2660. For today, USDCAD support is at 1.2440 and 1.2410. Resistance is at 1.2510 and 1.2550.
Today’s Range 1.2440-1.2510