Good Morning All;
The US dollar steadied after breaking past more of last year’s peaks against the euro on Thursday, with only the March 2015 high of $1.0457 standing in the way of a push towards parity that banks are again saying is on the cards. The US dollar hit an eight-month high against the yen and an almost 14-year high against a basket of currencies that measures its broader strength. The dollar’s surge is based largely on a belief that Donald Trump’s presidency will witness a bump in inflation that will drive U.S. interest rates higher and potentially see substantial dollar capital brought home by U.S. corporates. The dollar index also steadied at 101.71, relatively unchanged for the day, and just off the morning high of 102.05.
Among developed markets, it is the yen that has taken the biggest hint since Trump’s election. It was down another 0.72% at 113.36, having reached 113.53 earlier. The euro steadied at $1.0559 after hitting lows of $1.0515. Downward momentum for the euro against the U.S. dollar remains firmly in place in the near-term. A break below $1.0458 would open the door for a potential test of parity. The euro is likely to remain offered in the week ahead.
Sterling was headed for its strongest monthly performance in eight years on both a trade-weighted basis and against the euro on Thursday, hitting a nine-week high against the basket of currencies that measures its broader strength. The pound has been boosted this month as investors have unwound heavy positions against the currency, with the focus turning away from political risks facing Britain – namely its messy exit from the EU – and towards risks elsewhere, particularly in Europe. While still more than 10% weaker on a trade-weighted basis compared with before the vote for Brexit, it has gained more than 5% since the start of the month against the euro, which is weighed down by uncertainty over an Italian constitutional referendum in just over a week’s time, and over French and German elections next year. Against the dollar, which was trading near 14-year-highs, sterling was relatively unchanged on the day to $1.2444.
The Canadian dollar was unchanged against its U.S. counterpart on Thursday as the greenback trimmed some recent gains against a basket of major currencies and oil edged higher. A modest pullback for the U.S. dollar came amid thinner volumes, with U.S. markets closed for the Thanksgiving holiday. The Canadian dollar was trading at C$1.3496 to the greenback, or 74.10 U.S. cents, unchanged from Wednesday’s close. The currency’s strongest level of the session was C$1.3477, while its weakest was C$1.3535.
The Australian dollar struggled on Thursday as the U.S. dollar steamed ahead on bets that inflation and interest rates will rise in the United States, both in December and over 2017. But the Aussie managed to squeeze gains to advance $0.7403, up 0.3%, having met stiff resistance at $0.7446 on Wednesday. Minor support was found around $0.7365 and a break of $0.7340 would signal a test of the strong support base of $0.7286-$0.7305.
Chinese state-owned banks sold dollars on Thursday as the Yuan inched toward the psychological 7-per-dollar level, a level not seen in more than eight years, traders said. The Yuan has now depreciated by more than 6% against the dollar so far this year, with its slide accelerating along with other emerging market currencies in recent weeks as the greenback surged on expectations of higher U.S. interest rates. State-owned banks were offering dollar liquidity at around the 6.92 level to prevent the Yuan from falling too fast, two currency traders said.
Latin American stocks and currencies seesawed on Thursday in thin trading volumes amid the U.S. Thanksgiving holiday. The Mexican peso slipped 0.5% to 20.739, while the real was nearly flat at 3.392. Both currencies had weakened sharply the previous day after stronger-than-expected U.S. economic figures supported expectations of a December U.S. rate increase.
The Indian rupee fell to a record low of 68.8650 on Thursday, pressured by a rallying U.S. dollar, capital outflows from emerging markets, and worries about the country’s demonetisation drive. Despite repeated interventions by the central bank to slow the slide, the rupee breached its previous low of 68.85 to the dollar hit in August 2013, when India was mired in its worst currency crisis in more than two decades. The RBI intervened again in the afternoon, after spending around $500 million in the morning, eventually pushing the rupee to a close of 68.73, down from its 68.58 close on Wednesday.