Good Morning All;
The US dollar slid against major rivals on Friday as investors took advantage of a minor pullback in U.S. bond yields from recent highs and a holiday-shortened week to consolidate gains that had propelled the currency to a nearly 14-year peak. Expectations of higher U.S. inflation and interest rate hikes by the Federal Reserve have driven the greenback to a more than 6% gain in the last two months, its strongest showing over a similar period since early 2015. The US dollar index, DXY, fell 0.2% to 101.49 after hitting an almost 14month peak the previous session. The index posted its largest one fall since early November.
After hitting an 8-month high of 113.90 yen earlier, the dollar was down 0.2% against the yen at 113.16 yen, although it still ended the week with a 2% gain. The euro rose 0.5% to $1.0601 after dropping to $1.0518 on Thursday, it’s the lowest since March 2015.
Sterling slipped against the euro on Friday but was still on track for its longest run of weekly gains since early 2015, with investors switching their focus from the political risks facing Britain towards those facing the euro zone. Though the pound was down half a% against the single currency on Friday at 84.99 pence per euro, it was on course for a fourth straight week of gains and was heading for its best month in eight years with just over three trading days of November left, after a 5% rise. Against the dollar, sterling is still down 16% since the Brexit vote, though it was 0.2% up at $1.2485 on Friday. Analysts are split over the broader outlook for sterling heading into early 2017, when Article 50 is due to be triggered, kicking off formal Brexit talks with Brussels.
The Canadian dollar weakened against its U.S. counterpart on Friday as a drop in oil prices offset a pullback for the greenback against a basket of major currencies. The Canadian dollar ended at C$1.3527 to the greenback, or 73.93 U.S. cents, weaker than Thursday’s close of C$1.3491, or 74.12 U.S. cents. It dipped 0.1% on the week. The losses for the Loonie came as Canada’s 10-year yield fell 2.7bp below its U.S. equivalent to leave a spread of -79.4bp. On Wednesday, the spread hit its widest in 10 months at -81.9bp. A wider spread reduces investor incentive to buy lower-yielding Canadian bonds, trimming demand for Canadian dollars.
The Australian dollar jumped on the Japanese yen on Friday as investors piled positions in high-yielding currencies with Aussie bond yields near 11-month highs, tracking U.S. Treasuries. The Australian dollar hit a seven month peak of 84.60 yen, clocking its fifth straight day of gains. The Aussie rose 0.4% against the greenback but was trapped in a $0.7365-$0.7446 band. It has gained more than 1% on the week, holding its own against the dollar. Support for the currency appears to have been driven by another solid night for commodities. Prices of iron ore, the country’s single biggest export earner, have rallied hard this week. Futures traded in China were up almost 6%, having jumped over 7% on Wednesday.
China’s Yuan was headed for its third straight week of losses against the dollar on Friday, despite trading a touch stronger in the morning. The Yuan has fallen 0.4% so far this week and more than 6% against the dollar so far this year. Its slide has accelerated along with other emerging market currencies in recent weeks as the dollar surged on expectations of higher U.S. interest rates. Some investors and companies were selling dollars on Friday to lock in profits, fearing state-owned banks could step in to support the Yuan by providing dollar liquidity near the 6.92 level, as happened on Thursday, traders said. Offshore one-year NDFs contracts, considered the best available proxy for forward-looking market expectations of the Yuan’s value, traded at 7.1150, 2.79% weaker than the midpoint.
If Turkey’s central bank hoped for a dramatic turnaround in the lira currency after raising interest rates for the first time in nearly three years, then it has been sorely disappointed. The currency briefly firmed following Thursday’s bigger-than-expected hike, but soon lost steam. By early Friday, it had touched another record low and was firmly on track for a 10% decline this month – its biggest fall since late 2008. They predicted that the lira, which stood at 3.4471 to the dollar after hitting a record low of 3.4760 overnight, would fall as far as 3.7 to the dollar by the end of next year. The main downside risk is that Turks lose faith in their economy, which would lead to increasing outflows and exert additional pressure on the currency.
The Reserve Bank of India intervened repeatedly on Thursday to lift the rupee off record lows. The bank spent around $500 million in the morning but had to step in again as the rupee slipped towards 70 per dollar.
South Africa’s rand weakened on Friday after Fitch cut its rating outlook to negative as it affirmed the country’s investment grade rating at one-notch above “junk”. The unit dipped by as much as 0.3% shortly after the news from Fitch, before paring loses to 0.3% at 14.105.
Brazil’s currency fell on Friday on concerns that fiscal reforms could be derailed by a potential investigation into whether President Michel Temer pressured an ex-minister to allegedly favour a cabinet colleague’s property investment. The real slipped as much as 2.2% to 3.4679 reais but later pared back losses to 0.8%.