Daily Market Update

Dollar mixed as doubts over debt ceiling grow

May 16, 2023

The United States Dollar continued its easing overnight but partially rebounded in this morning’s trading session after US retail sales data for April was released.

Overview

Though the full print hit on expectations at the growth of 0.4%, the core reading (excluding home and auto sales) rose 0.7% on expectations of 0.4% growth, a surprisingly strong print for an economy in flux.

Debt ceiling negotiations between President Joe Biden and House Speaker Kevin McCarthy also continue today. Friday’s meeting was postponed on good sentiment between the two, but as the June 1 deadline espoused frequently by Janet Yellen approaches fast, today’s meeting proves to be of the utmost importance. Ironically, this domestic stress is actually helping USD benefit from safe-haven flows.

The US’s position as the largest economy in the world means that weakness and strife internally are unequivocally bad things for the rest of the world. Today’s mixed bag of sentiment is providing the Buck with a small amount of support broadly, but this may not last through the week.

Elsewhere across the world, Chinese spending and industrial activity grew at a slower pace than expected in April. As we noted yesterday, signs point to a choppier-than-anticipated global recovery, and safe havens continue to find strong footing on this uncertainty.

 

What to Watch Today…

  • No major economic events are scheduled for today
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AUD ⇓

The Australian dollar finds itself the loser on the G10 board this morning as investors weigh the strength of the Antipodean nation’s ties to the Chinese economy. AUD prices dropped as much as 0.5% this morning on Chinese data largely because of the currency’s status as a proxy for China. Commodity-driven currencies as a whole are largely on the back foot today as havens rise.

 

CAD ⇑

The Loonie’s rebound continued this morning against USD as Canadian CPI was released at 8:30, showing annual inflation rose 4.4% versus the 4.1% expected. This upside surprise ended a long run of deceleration and showed that Canada’s path toward returning to benchmark 2% inflation – much like the rest of the world – may be bumpier than the Bank of Canada previously expected. After holding interest rates steady last month, the odds of a hike in June are increasing.

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