Dollar Ends Bruising Week: More Losses Ahead?

Dollar Ends Bruising Week: More Losses Ahead?

Kathy Lien  | Nov 15, 2019 20:22

Kathy Lien, Managing Director Of FX Strategy For BK Asset Management

Daily FX Market Roundup November 15, 2019

It has been a challenging week for the U.S. dollar as the greenback sold off against most of the major currencies. Weaker U.S. data combined with Federal Reserve Chairman Powell’s benign outlook for the U.S. economy reinforced the market’s view that low rates will be here to stay. Trade talks also hit a snag this week and the ongoing uncertainty is taking its toll on currencies. Unless President Trump officially announces a rollback of some U.S. tariffs, which is possible, the dollar is vulnerable to further losses against euro and the Japanese yen. For other currencies, risk aversion will offset demand, leading to restrained moves in sterling, the Australian and Canadian dollars.

We’ve learned this past week that while consumer prices edged higher in October, manufacturing activity slowed and the recovery in consumer demand was shallower than expected. Fed Chairman Powell is holding onto the view that the economy is recovering but the slow pace means that monetary policy needs to remain accommodative. According to Powell, there’s a lot to like about today’s labor market but it’s a puzzle as to why we’ve not seen more uptick in wages. This may have to do with low inflation and the fact that lower inflation and lower growth is the new normal. This isn’t likely to change in the near term, which is why interest-rate hikes are not on horizon. He also admits that there are downside risks and there’s nothing booming in the economy that could go bust. Slower global growth, Brexit and trade are the main concerns and for the time being, there’s no relief in sight. Of course, all of that could change if President Trump decides to delay or cancel the December 15 Chinese tariffs or better yet, combine that with tariff rollbacks but his recent language suggests that he wants to play hardball. Looking ahead, the main focus next week will be on the FOMC minutes, more manufacturing sector reports and trade. Barring any positive surprises, we expect USD/JPY to head back down to 108.

Euro could also make a run for 1.11 ahead of ECB President Lagarde’s speech on Friday. One of the biggest stories last week was that Germany avoided recession. This set a bottom for EUR/USD and we expect the single currency to outperform the dollar, sterling, Aussie and yen in the week ahead. Lagarde could throw a wrench into our positive outlook for the euro but she’s not speaking until the end of the week. Since the beginning of the month, we’ve seen a number of upside surprises in EZ and German data including factory orders, retail sales and ZEW. We are still waiting for an official U.S. decision on EU auto tariffs (will it be delays or not?) but Friday will be the big day for euro with November PMIs and Lagarde on the calendar.

We also like the New Zealand dollar. The RBNZ surprised the market when they left interest rates unchanged this week at 1%. According to Governor Orr, there is no urgency to act at this point because the lower NZ$ is supporting the economy. The central bank feels that policy is already very stimulatory and rates will need to stay low for a long period of time. They think that the economy is near a turning point and there could be acceleration but according to RBNZ Deputy Governor Bascand, “if pickup fails to materialize, we’ll do more.” The central bank is done for the year but they haven’t ruled out additional easing in 2020. In fact, RBNZ Assistant Governor Hawkesby says February is a “live” meeting but a rate cut would require a material change to their outlook. Governor Orr seems to agree – he said we’re starting to see signs of pickup in activity but the door is open for a rate cut if needed. Considering that the next policy meeting won’t be for another 3 months, the RBNZ’s decision to leaves rates unchanged should have residual impact on the currency.

The Australian dollar, on the other hand, took a nosedive on the back of disappointing labor data and this divergence in the performance of the antipodean currencies drove AUD/NZD to its lowest level since August. Job growth unexpectedly declined in October with more than 19K full-time and part-time jobs lost. This drove the unemployment rate up to 5.3% and the participation rate down a tick to 66%. Between U.S.-China trade tensions and this report, investors turned on the Australian dollar hard this week driving AUD to its weakest level in nearly a month. Dovish RBA minutes could keep A$ under pressure.

The Canadian dollar, meanwhile, is setting up for a recovery. After rallying for 2 weeks straight, the stability in oil prices and sell-off in the U.S. dollar led the pair to find resistance at the 200-day SMA. Next week, Canadian CPI and retail sales are scheduled for release. There will also be speeches from Bank of Canada Governor Poloz and Deputy Governor Wilkins. Poloz spoke earlier this week and he did not say much about the economy or monetary policy outside of a comment that wage inflation is now above 4% by most measures and that the labor market is telling us more than GDP data.

Last but certainly not least, sterling shrugged off back-to-back disappointments in economic data to end the week at 8-day highs near 1.29. Brexit is taking its toll on the UK economy but investors are relieved that the UK won’t be spiraling out of the EU and that Nigel Farage reduced his Brexit Party challenge this past week. With that said, we can’t put lipstick on the pig. The UK economy is slowing – over the past week, we've seen GDP growth fall short of expectations, the trade deficit widen, industrial production contract for the second month in a row, job losses mount, wage growth ease and most importantly, CPI and retail sales decline in October. If next week’s manufacturing-, service- and construction-sector PMI reports show a further slowdown in November, GBP/USD won’t be able to hold onto its gains.

Kathy Lien

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes


Download the App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors. is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.