Dollar index firms ahead of U.S. economic data

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OVERNIGHT MARKET SUMMARY

The U.S. dollar index firmed overnight following a mixed performance the previous session and with investors increasingly focused on upcoming U.S. economic reports. The greenback found some strength in the wake of news over the weekend that the Senate had passed its version of tax reform, with a closely watched vote along party lines. Still, the greenback’s upside was limited given that both the House and Senate versions of tax reform need to be reconciled in a join session of Congress, a process that could potentially result in delays or an additional watering-down of tax cuts. Separately, investors remain focused on a busy week of economic news that continues today with the release of the ISM services sector report, tomorrow’s ADP employment report and the all-important payrolls data on Friday.

Sterling led the march lower against the firmer greenback overnight, falling from a two-month high as some recent optimism surrounding the Brexit talks faded, leaving the pound vulnerable against its major rivals. A meeting yesterday between U.K. Prime Minister Theresa May and European Commission President Jean-Claude Junker failed to result in a firm commitment to moving negotiations to the trade phase after a closely watched Irish border deal did not materialize as expected. Investors expected an announcement of a deal yesterday on the Irish border, which would have likely cleared the way for broader Brexit talks to move onto the critical trade phase. The lack of a deal on the Irish border highlights the extent to which market optimism can quickly fade in headline-driven trading conditions.

The Aussie jumped to a three-week high even as the RBA left its key cash rate unchanged at a record low 1.50% for the 16th-straight policy board meeting. Instead, the Australian dollar found support from a jump in October retail sales figures and from higher iron-ore prices, which enjoyed five-straight sessions of gains.

The Canadian dollar broke above key technical resistance against the greenback in a move that was set in motion following two very strong economic data points last Friday. The loonie added to recent gains this morning after Canada’s trade gap was smaller than expected in October and ahead of the Bank of Canada’s final monetary policy meeting for 2017 tomorrow.

USD: The U.S. dollar firmed against its major rivals overnight and added to its gains again this morning as investors bought the greenback ahead of key economic reports throughout the week. The dollar found support this week following news over the weekend that the Senate had passed its version of tax reform, but gains were limited given that both the House and Senate must now reconcile each of their versions in a joint chamber of Congress. This week, investors will also look to key economic figures for clues on the outlook for Fed monetary policy. Another month of solid hiring and any meaningful increase in wages should add to the dollar’s improved tone.

GBP: Sterling slipped from a two-month high against the dollar as some of the optimism surrounding nascent signs of progress on the Brexit talks faded. U.K. Prime Minister Theresa May failed to reach a deal with the President of the European Commission yesterday, which could have paved the way for U.K.-EU Brexit talks to move on to discussions on trade. The issue of the Irish border, which was seen as largely resolved yesterday, turned out to have broken down and now appears to be more of a stumbling block to broader Brexit talks moving forward. A very strong reading of November’s U.K. services PMI did little to support the pound.

AUD: The Reserve Bank of Australia expectedly left its key cash rate unchanged at a record low 1.50% for the 16th-straight policy board meeting overnight. The Aussie moved higher following a very strong 0.5%(m/m) rise in October retail sales and as iron-ore, Australia’s largest export, rose for a fifth-straight trading session overnight.

CAD: The Canadian dollar added to yesterday’s gains after the nation’s trade gap was reported at C$1.47 billion in October, down from September’s C$3.36 billion and narrower than the C$2.70 billion expected. Investors remain focused on tomorrow’s BOC meeting, where lending rates are not likely to move but policymakers could modestly improve their outlook for Canada’s economy over the coming months. Such a scenario would keep alive hopes for a March lending rate increase and likely, keep the CAD pointed higher.

DOLLAR OVERNIGHT PERFORMANCE VERSUS
EUR
+0.29%
CAD
+0.02%
MXN
+0.75%
CNY
-0.03%
CHF
+0.18%
DKK
+0.28%
AUD
-0.12%
EUR/CAD
-0.29%
GBP
+0.44%
SEK
+0.36%
NZD
-0.29%
EUR/GBP
+0.06%
JPY
+0.29%
NOK
+0.05%
ZAR
+0.25%
EUR/JPY
+0.06%
MARKETS AND COMMODITIES PERFORMANCE
DOW JONES
24294.28
+0.02%
CRB INDEX
188.05
-0.33%
FTSE 100
2959.13
-0.31%
US 10 YEAR
2.386
+0.005%
GOLD
1264.95
-10.11%
CRUDE OIL
57.40
-0.07%

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