The dollar continued to flounder at the outset of a quiet start to a new trading week as investors continue to fret over the implication for growth from the creation of a meager 54,000 new jobs during May. Risk aversion is a growing theme with equity markets around the world still playing out an especially soggy patch. And while most agree that the second half of the year will be better than the first, there are growing fears that the world’s largest economy is increasingly open to downside external shocks. As such the dollar is losing much of its recent lucky charm as a safety play at times when risks rise.
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U.S. Dollar – The dollar index continued to recoil from a six-week high reached two weeks ago although is currently a little firmer on the day to stand at 73.87 on account of a pause in the advance of European units. Dealers took to selling the dollar in the Asian and European sessions partly in order to return to traditional carry plays in which low-yielding units are sold in order to establish long positions in higher yielding assets. However, with equity markets are still searching for a forward-looking catalyst other than an ultra-low environment for monetary policy, the dollar appears to have had some blushes spared this morning.
Japanese yen – The yen breached ¥80 against the dollar for the first time since May 5, as dealers compared the outlook for both Japan and the United States and concluded that at worst, and under times of pressure, at least the Japanese economy has a current account surplus. The yen rose uniformly against all of the majors as demand for risk aversion rose. The euro fell to ¥117.07 versus the yen while the Japanese unit also rose against the pound to ¥131.48.
Euro – For the most part the euro has risen in response to hopes that the EU and IMF will signal an all-clear for Greece having scoured its books leaving the path to a second and more costly financial package. It seems that the IMF audit found progress in Greek austerity measures and plans to sell off state-owned assets in order to help fund the deficit. The news reassured investors who drove the euro to its highest in a month at $1.4658. However, a German official’s lone comments this morning appear to be casting some doubt that the passage will be smooth sailing and, although not yet widely circulated, this appears to be the cause of euro weakness back below $1.4600 on the day.
British pound – The pound rose to its best since Wednesday versus the dollar carried higher by the rebound in attitude towards the single European unit. May car registrations once again indicated the ailing health of the British consumer as the measure slipped by 1.7%. The pound eased to $1.6392 in early New York trading having reached $1.6460 in the European session. In the space of the last week the pound has slid against the euro losing three pennies and this morning a single euro buys 89.12 British pence.
Aussie dollar – There are no expectations that the Reserve Bank of Australia will raise its policy-setting rate at its Tuesday meeting. Current benchmark rates stand at 4.75% with the market looking for just one more rate rise of one-quarter of one percent over the next 12 months to finish off the monetary tightening cycle. A private sector measure of inflation collated by TD Securities showed inflation rose at 0.2% for the month of May allowing for a slip in the annual pace to 3.3% from 3.6% in April. The RBA has a policy target window for consumer prices of between 2-3% and this reading will provide a slight boost of confidence that the measures it’s already taken are having the desired effect. The Aussie continues to benefit as a higher yielding unit, favored more so than other commodity plays on account of its central location in the Asian market where the recovery has better sea legs at this point. Today the unit reached $1.0767 U.S. cents.
Canadian dollar – The Canadian dollar is trying its hardest to erase a loss on Monday that saw it decline to $1.0183 U.S. cents. Curiously the jump higher is coming hot on the heels of a worse than expected reading for April building permits. The value of building permits fell 21% to $5.3 billion as both residential and non-residential sectors declined. The Canadian unit currently buys $1.0205 cents.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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