As anxieties surrounding the health of the larger global economy continue to simmer near the surface of the minds of markets, the United States Dollar is trading in mixed territory after closing out yesterday with its fifth straight positive trading session.
Overview
Risk-off trading continues to dominate financial markets, with equities bearing the brunt of the burden yesterday and looking set to continue on that trend today. Tech stocks led the decline globally yesterday, with the Nasdaq shedding more than three percent and looking set to open in the red once again today.
The US saw several data releases yesterday that pointed to an economy in decline, including below-expectation manufacturing and PMI readings in the morning. Manufacturing’s poor performance, in particular, is not at all limited to the US – global manufacturing production has been spotty at best for the better part of the last two years, and China’s continued struggles in that, along with other sectors, is continuing to drag down the global picture. During the front end of this year, it appeared that the US was, to an extent, keeping the global economy somewhat afloat, but as anxieties surrounding the potential for a domestic recession and the Fed’s easing path gain traction, such ‘US exceptionalism’ may be fading from the narrative. Bets on a jumbo interest rate cut from the Federal Reserve ticked upward again yesterday, with traders now seeing a 40% chance that the central bank will cut rates by 50 basis points later this month. This desk still believes that the Fed will cut rates by 25 basis points in two weeks and will cut no more than 75 basis points this year.
Today’s session is likely to see nervous price action once again, and the Dollar could be a beneficiary of that, with the caveat that there are yet more data points due out later this morning. Traders are jittery waiting for JOLTS job openings, factory orders, and the final reading of durable goods orders for July, all set to be released at 10 AM eastern time.
What to Watch Today…
- S&P Composite PMI, Thursday 9:45 AM
- Eurozone GDP, Friday
- Non-Farm Payrolls, Friday 8:30 am
- Monex USA Online is always open.
CAD ⇑
The Loonie has found some footing over the last few weeks of trading and, though close to flat on the morning, has gained back more than 3% of ground from early August’s weak point. The Bank of Canada is releasing its latest interest rate decision later this morning and is widely expected to cut a further 25 basis points, bringing the total of its policy easing to 75 basis points this year. Though traditionally, such a move might bring further weakness to the currency, the BoC has long telegraphed this easing cycle, and markets see this as merited given waning inflation in our neighbors to the north. Options traders continue to be bullish on CAD, seeing a bit of remaining upside for the currency.
MXN ⇓
Mexican Peso’s weeks-long slide continues today after Mexico’s lower congressional house approved the general text of a judicial reform program that has caused some substantial anxiety amongst the country’s allies. After MXN was the best-performing currency in the world last year, the tables have decidedly turned on the emerging-market darling, and MXN has lost more than 20% of its strength since its strong point in April. The political picture between the US and Mexico is the big question for the last few months of this year, as Mexico’s new administration is set to enter office and the US election cycle continues through November.
