The dollar gained for a second day, erasing its decline since minutes of the Federal Reserve’s most recent meeting showed policy makers are concerned the U.S. economy may be at risk from a worldwide slowdown.
The U.S. currency rose against most of its 31 major peers. The yen has strengthened this week against the euro as European Central Bank President Mario Draghi said there were indications the region’s economy is losing momentum, boosting demand for haven assets. Australia’s dollar fell for a second day after a report showed home loans unexpectedly dropped, while Norway’s krone slid as inflation accelerated less than economists forecast.
“The market’s just trying to get its bearings after a volatile week,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “The dollar, fresh off its record rally, and with Fed concerns on the rise about the potential impact to the economy from currency appreciation, overall the dollar could see a slower pace of appreciation. But broader term, it looks good.” The U.S. Dollar Index rose 0.4 percent to 85.85 as of 2:02 p.m. New York time. The measure is down 1 percent over the past five days, snapping the longest weekly streak of gains since 1971, when the Bretton Woods agreement that pegged the U.S. currency to gold collapsed.
The dollar was little changed at 107.81 yen, and poised for a weekly decline of 1.8 percent, the first since the period ended Aug. 8. The U.S. currency rose 0.5 percent to $1.2626 per euro. The yen appreciated 0.5 percent to 136.12 per euro.
Aussie Falls
Australia’s dollar lost the most of the greenback’s 31 major counterparts after the Bureau of Statistics said home loans dropped 0.9 percent in August from the previous month.
The Aussie weakened 0.7 percent to 87.18 U.S. cents, paring its gain this week to 0.5 percent. Norway’s currency fell after an inflation report missed forecasts. The krone weakened versus most of its major peers as data showed underlying consumer prices rose an annualized 2.4 percent last month, versus a 2.6 percent estimate in a Bloomberg survey of analysts.
The currency depreciated 0.7 percent to 6.5192 per dollar and lost 0.2 percent to 8.2304 per euro.
Draghi said today that the ECB remains “unanimous in its commitment to using additional unconventional instruments within its mandate” to address “risks of too prolonged a period of low inflation.” German Finance Minister Wolfgang Schaeuble however cautioned yesterday against U.S.-style quantitative easing and urged continued budgetary discipline.
The euro-area economy stagnated in the second quarter and the ECB predicts only modest growth through year-end.
Trading Patterns
“The major driver this week has been the risk environment, that has been very shaky with volatile action in equities,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in Paris. “Overall the dollar should stay quite strong, with the Fed being quite dovish.”
A measure of the dollar’s momentum, known as the seven-week relative strength indicator, rose as high as 96.6 at the end of last month, well above the 70 level that most traders view as a signal the currency’s move higher is ready to exhaust itself and reverse lower. The measure was 63 today. The currency gained the past two days as traders reassessed minutes from the latest Fed meeting. A number of Federal Open Market Committee participants said the U.S. expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 meeting on Oct. 8.
“The dollar strengthening trend is to continue,” said Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York. “The reason why the market may have gotten a little bit of market indigestion over the minutes was that there really wasn’t much to focus on this week.”
Stability Risk
Philadelphia Fed President Charles Plosser said today that maintaining interest rates at too low a level for too long poses a risk to financial stability.
The yen advanced 1.5 percent in the past month, the second-best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was the best performer, rising 2.6 percent, and the euro was little changed. “The broader dollar uptrend is still intact,” said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. “Markets started having second thoughts yesterday about their reaction to the FOMC minutes so that’s probably helped.”
Canadian Dollar Strengthens Against Peers as Jobless Rate Drops
The Canadian dollar rose versus most of its major counterparts after a report showed the nation’s jobless rate fell to a six-year low on the biggest monthly increase in employment since May 2013.
The currency strengthened after job creation more than tripled the average forecast of private sector economists and the economy created a record number of private sector jobs in September. The rise in payrolls comes after the country lost jobs the previous month and reports last week showed gross domestic product growth stalled in July and the country posted an unexpected trade deficit in August. “The Bank of Canada has been talking about weakness in the labor market as an indicator of slack,” said Andrew Kelvin, senior fixed-income strategist at Toronto-Dominion Bank, by phone. “If you take them at their word on that, they have to regard this as a sign there’s less slack than maybe they believed a month ago. The prospect of a little bit quicker tightening, marginally speaking, implies a stronger Canadian dollar.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, touched its highest point in more than eight months against its Australian peers and also registered gains against the euro, the British pound and others.
A rallying U.S. dollar meant Canada’s currency was little changed versus the greenback at C$1.1197 per U.S. dollar at 1:27 p.m. in Toronto. One loonie buys 89.32 U.S. cents. The currency has strengthened 0.4 percent this week and is down 5.1 percent this year.
Skeptical Reception
The unemployment rate fell to 6.8 percent last month, the lowest since December 2008 and down from 7 percent a month earlier, Statistics Canada said today in Ottawa. The economy created 74,100 jobs, the majority in full-time employment, after recording a decline of 11,000 jobs in August. Economists surveyed by Bloomberg News projected a 20,000 job increase and an unchanged unemployment rate, according to median forecasts.
“The numbers were so strong, and the numbers have been so volatile, up one month, down a month, up one month, down a month, that I think it just has markets kind of looking through them,” said Camilla Sutton, chief currency strategist at Bank of Nova Scotia, by phone from Toronto. “The overall moving averages are still a pace of subdued job growth, and what really matters right now for the Canadian dollar is the broad U.S. dollar move.”
Recent U.S. jobs data has more consistently pointed to stronger growth than Canada’s, with figures yesterday showing the number of people seeking jobless benefits falling to an eight-year low. That followed a report a week ago that employers added 248,000 to payrolls in September, the eighth month in nine employment gains exceeded 200,000. The U.S. jobless rate fell to 5.9 percent, a six year low.
Employment Volatility
Even with last month’s increase, Canadian monthly employment gains over the past 12 months have averaged about 13,000 jobs, compared with monthly average increases of about 23,000 recorded between 2010 and 2012, according to Statistics Canada data. The fact that gains are below the long-term average and the volatility in the jobs numbers month-to-month limited the Canadian dollar’s gains, TD’s Kelvin said.
“It’s a really volatile number and markets have limited faith in it,” he said. “The 12-month average is still only about 13,000 jobs. That’s OK, that’s not great.”
Brazil’s Real Falls as Voter Polls Show Runoff Too Close to Call
Brazil’s real dropped as voter polls indicated the runoff between President Dilma Rousseff and Senator Aecio Neves is too close to call, dimming speculation that a new government will restore growth.
The real fell 0.3 percent to 2.4061 per dollar at 3:34 p.m. in Sao Paulo. The real was still up 2.2 percent this week in its first five-day advance since August. One-month implied volatility on options for the real, reflecting projected shifts in the currency, was the highest in emerging markets as the Oct. 26 runoff approached. The real also dropped today on concern Europe’s economy will struggle to grow, sinking demand for higher-yielding assets.
“The markets were anticipating that Neves would be some 10 points ahead of Rousseff, but they were in fact tied,” Joao Paulo de Gracia Correa, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview. “Concern over the health of the European economy is drying up demand for riskier assets.”
Neves garnered 46 percent support compared with 44 percent for Rousseff in an Oct. 7-8 Ibope poll, indicating a difference that is within the margin of error of plus or minus two percentage points.
Rousseff is seeking a second four-year term as her administration contends with the nation’s first recession since 2009 and above-target inflation.
Inflation Target
Consumer prices increased 6.75 percent in the 12 months through September, the fastest pace since October 2011, the national statistics agency reported this week. The official target is 4.5 percent plus or minus 2 percentage points. Arminio Fraga, the finance minister designate of Neves, said during a debate with Finance Minister Guido Mantega on GloboNews TV that the government lost control of inflation.
The monetary policy in 2014 was “very rigorous,” and the government fought inflation, Mantega countered. According to Fraga, inflation is being held down by repressing prices. Brazil’s swap rates, a gauge of expectations for changes in borrowing costs, rose 0.10 percentage point to 11.96 percent today on the contract due in January 2016 and are up 0.05 percentage point this week.
The central bank raised the target lending rate by 3.75 percentage points in the year through April to a two-year high of 11 percent in an effort to curb inflation before holding borrowing costs steady for the past three meetings. To support the currency, Brazil sold today $197.7 million of foreign-exchange swaps today as part of an intervention program and rolled over contracts worth $393.3 million.
As the International Monetary Fund’s annual meeting in Washington began, European Central Bank President Mario Draghi pledged anew to loosen monetary policy more if needed and called on those governments with the room to ease fiscal policy to do so. In contrast, German Finance Minister Wolfgang Schaeuble warned against U.S.-style quantitative easing and urged continued budgetary discipline.
Peru Keeps Key Rate at 3.5% on First Signs of Nascent Rebound
Peru kept borrowing costs unchanged as the economy shows signs of improvement after three rate cuts in the past year and a government stimulus package. Policy makers maintained the overnight rate at 3.5 percent yesterday, as forecast by 15 of 18 economists surveyed by Bloomberg. Three analysts had expected a quarter-point cut.
Indicators signal a “weak economic cycle with GDP growing at rates below its potential, though with some signs of recovery in September,” the central bank said in a statement accompanying the decision. The board is ready to consider additional easing measures if needed, the statement said.
The central bank cut reserve requirements on Oct. 1 after lowering its key rate last month to a three-and-a-half year low to boost investment that has been damped by falling copper and gold exports. Of the 21 indicators of business sentiment tracked by the central bank, 16 saw a “notable” improvement in September, the bank said Oct. 6. “A rate cut isn’t needed to stimulate the economy,” Guillermo Arbe, head of research at Scotiabank Peru, said by phone from Lima. “Companies are seeing their sales holding up better than the headline GDP number would suggest.”
South America’s sixth-largest economy expanded 1.2 percent in July from a year earlier, as the manufacturing, mining and construction industries contracted. While faster than the 0.3 percent expansion in June, the figure is well below last year’s 5.8 percent gain in gross domestic product.
Nascent Rebound
Improving business sentiment and employment growth indicate the deceleration has touched bottom, though higher public investment is needed to strengthen the recovery, Arbe said.
The government probably will announce a “short-term” fiscal stimulus as spending measures announced in recent months are taking longer than expected to implement, Finance Minister Alonso Segura told lawmakers Oct. 1. Fiscal stimulus executed this year will equate to 1.2 percent of GDP, Segura said, less than the 1.6 percent approved by the Finance Ministry between May and July. Copper, Peru’s top export earner, has dropped 11 percent in New York this year, damping mining investment in the third-largest producer of the metal. Increased output from new mines and infrastructure investment will spur 6 percent economic growth next year after a projected 3.5 percent expansion this year, central bank President Julio Velarde said Sept. 30.
Consumer prices rose 0.16 percent last month, taking the annual inflation rate to 2.74 percent. The central bank, which targets inflation in a range of 1 percent to 3 percent, sees price growth slowing to 2 percent next year from the 2.8 percent forecast for this year.
source: Bloomberg
The U.S. currency rose against most of its 31 major peers. The yen has strengthened this week against the euro as European Central Bank President Mario Draghi said there were indications the region’s economy is losing momentum, boosting demand for haven assets. Australia’s dollar fell for a second day after a report showed home loans unexpectedly dropped, while Norway’s krone slid as inflation accelerated less than economists forecast.
“The market’s just trying to get its bearings after a volatile week,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “The dollar, fresh off its record rally, and with Fed concerns on the rise about the potential impact to the economy from currency appreciation, overall the dollar could see a slower pace of appreciation. But broader term, it looks good.” The U.S. Dollar Index rose 0.4 percent to 85.85 as of 2:02 p.m. New York time. The measure is down 1 percent over the past five days, snapping the longest weekly streak of gains since 1971, when the Bretton Woods agreement that pegged the U.S. currency to gold collapsed.
The dollar was little changed at 107.81 yen, and poised for a weekly decline of 1.8 percent, the first since the period ended Aug. 8. The U.S. currency rose 0.5 percent to $1.2626 per euro. The yen appreciated 0.5 percent to 136.12 per euro.
Aussie Falls
Australia’s dollar lost the most of the greenback’s 31 major counterparts after the Bureau of Statistics said home loans dropped 0.9 percent in August from the previous month.
The Aussie weakened 0.7 percent to 87.18 U.S. cents, paring its gain this week to 0.5 percent. Norway’s currency fell after an inflation report missed forecasts. The krone weakened versus most of its major peers as data showed underlying consumer prices rose an annualized 2.4 percent last month, versus a 2.6 percent estimate in a Bloomberg survey of analysts.
The currency depreciated 0.7 percent to 6.5192 per dollar and lost 0.2 percent to 8.2304 per euro.
Draghi said today that the ECB remains “unanimous in its commitment to using additional unconventional instruments within its mandate” to address “risks of too prolonged a period of low inflation.” German Finance Minister Wolfgang Schaeuble however cautioned yesterday against U.S.-style quantitative easing and urged continued budgetary discipline.
The euro-area economy stagnated in the second quarter and the ECB predicts only modest growth through year-end.
Trading Patterns
“The major driver this week has been the risk environment, that has been very shaky with volatile action in equities,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in Paris. “Overall the dollar should stay quite strong, with the Fed being quite dovish.”
A measure of the dollar’s momentum, known as the seven-week relative strength indicator, rose as high as 96.6 at the end of last month, well above the 70 level that most traders view as a signal the currency’s move higher is ready to exhaust itself and reverse lower. The measure was 63 today. The currency gained the past two days as traders reassessed minutes from the latest Fed meeting. A number of Federal Open Market Committee participants said the U.S. expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 meeting on Oct. 8.
“The dollar strengthening trend is to continue,” said Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York. “The reason why the market may have gotten a little bit of market indigestion over the minutes was that there really wasn’t much to focus on this week.”
Stability Risk
Philadelphia Fed President Charles Plosser said today that maintaining interest rates at too low a level for too long poses a risk to financial stability.
The yen advanced 1.5 percent in the past month, the second-best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was the best performer, rising 2.6 percent, and the euro was little changed. “The broader dollar uptrend is still intact,” said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. “Markets started having second thoughts yesterday about their reaction to the FOMC minutes so that’s probably helped.”
Canadian Dollar Strengthens Against Peers as Jobless Rate Drops
The Canadian dollar rose versus most of its major counterparts after a report showed the nation’s jobless rate fell to a six-year low on the biggest monthly increase in employment since May 2013.
The currency strengthened after job creation more than tripled the average forecast of private sector economists and the economy created a record number of private sector jobs in September. The rise in payrolls comes after the country lost jobs the previous month and reports last week showed gross domestic product growth stalled in July and the country posted an unexpected trade deficit in August. “The Bank of Canada has been talking about weakness in the labor market as an indicator of slack,” said Andrew Kelvin, senior fixed-income strategist at Toronto-Dominion Bank, by phone. “If you take them at their word on that, they have to regard this as a sign there’s less slack than maybe they believed a month ago. The prospect of a little bit quicker tightening, marginally speaking, implies a stronger Canadian dollar.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, touched its highest point in more than eight months against its Australian peers and also registered gains against the euro, the British pound and others.
A rallying U.S. dollar meant Canada’s currency was little changed versus the greenback at C$1.1197 per U.S. dollar at 1:27 p.m. in Toronto. One loonie buys 89.32 U.S. cents. The currency has strengthened 0.4 percent this week and is down 5.1 percent this year.
Skeptical Reception
The unemployment rate fell to 6.8 percent last month, the lowest since December 2008 and down from 7 percent a month earlier, Statistics Canada said today in Ottawa. The economy created 74,100 jobs, the majority in full-time employment, after recording a decline of 11,000 jobs in August. Economists surveyed by Bloomberg News projected a 20,000 job increase and an unchanged unemployment rate, according to median forecasts.
“The numbers were so strong, and the numbers have been so volatile, up one month, down a month, up one month, down a month, that I think it just has markets kind of looking through them,” said Camilla Sutton, chief currency strategist at Bank of Nova Scotia, by phone from Toronto. “The overall moving averages are still a pace of subdued job growth, and what really matters right now for the Canadian dollar is the broad U.S. dollar move.”
Recent U.S. jobs data has more consistently pointed to stronger growth than Canada’s, with figures yesterday showing the number of people seeking jobless benefits falling to an eight-year low. That followed a report a week ago that employers added 248,000 to payrolls in September, the eighth month in nine employment gains exceeded 200,000. The U.S. jobless rate fell to 5.9 percent, a six year low.
Employment Volatility
Even with last month’s increase, Canadian monthly employment gains over the past 12 months have averaged about 13,000 jobs, compared with monthly average increases of about 23,000 recorded between 2010 and 2012, according to Statistics Canada data. The fact that gains are below the long-term average and the volatility in the jobs numbers month-to-month limited the Canadian dollar’s gains, TD’s Kelvin said.
“It’s a really volatile number and markets have limited faith in it,” he said. “The 12-month average is still only about 13,000 jobs. That’s OK, that’s not great.”
Brazil’s Real Falls as Voter Polls Show Runoff Too Close to Call
Brazil’s real dropped as voter polls indicated the runoff between President Dilma Rousseff and Senator Aecio Neves is too close to call, dimming speculation that a new government will restore growth.
The real fell 0.3 percent to 2.4061 per dollar at 3:34 p.m. in Sao Paulo. The real was still up 2.2 percent this week in its first five-day advance since August. One-month implied volatility on options for the real, reflecting projected shifts in the currency, was the highest in emerging markets as the Oct. 26 runoff approached. The real also dropped today on concern Europe’s economy will struggle to grow, sinking demand for higher-yielding assets.
“The markets were anticipating that Neves would be some 10 points ahead of Rousseff, but they were in fact tied,” Joao Paulo de Gracia Correa, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview. “Concern over the health of the European economy is drying up demand for riskier assets.”
Neves garnered 46 percent support compared with 44 percent for Rousseff in an Oct. 7-8 Ibope poll, indicating a difference that is within the margin of error of plus or minus two percentage points.
Rousseff is seeking a second four-year term as her administration contends with the nation’s first recession since 2009 and above-target inflation.
Inflation Target
Consumer prices increased 6.75 percent in the 12 months through September, the fastest pace since October 2011, the national statistics agency reported this week. The official target is 4.5 percent plus or minus 2 percentage points. Arminio Fraga, the finance minister designate of Neves, said during a debate with Finance Minister Guido Mantega on GloboNews TV that the government lost control of inflation.
The monetary policy in 2014 was “very rigorous,” and the government fought inflation, Mantega countered. According to Fraga, inflation is being held down by repressing prices. Brazil’s swap rates, a gauge of expectations for changes in borrowing costs, rose 0.10 percentage point to 11.96 percent today on the contract due in January 2016 and are up 0.05 percentage point this week.
The central bank raised the target lending rate by 3.75 percentage points in the year through April to a two-year high of 11 percent in an effort to curb inflation before holding borrowing costs steady for the past three meetings. To support the currency, Brazil sold today $197.7 million of foreign-exchange swaps today as part of an intervention program and rolled over contracts worth $393.3 million.
As the International Monetary Fund’s annual meeting in Washington began, European Central Bank President Mario Draghi pledged anew to loosen monetary policy more if needed and called on those governments with the room to ease fiscal policy to do so. In contrast, German Finance Minister Wolfgang Schaeuble warned against U.S.-style quantitative easing and urged continued budgetary discipline.
Peru Keeps Key Rate at 3.5% on First Signs of Nascent Rebound
Peru kept borrowing costs unchanged as the economy shows signs of improvement after three rate cuts in the past year and a government stimulus package. Policy makers maintained the overnight rate at 3.5 percent yesterday, as forecast by 15 of 18 economists surveyed by Bloomberg. Three analysts had expected a quarter-point cut.
Indicators signal a “weak economic cycle with GDP growing at rates below its potential, though with some signs of recovery in September,” the central bank said in a statement accompanying the decision. The board is ready to consider additional easing measures if needed, the statement said.
The central bank cut reserve requirements on Oct. 1 after lowering its key rate last month to a three-and-a-half year low to boost investment that has been damped by falling copper and gold exports. Of the 21 indicators of business sentiment tracked by the central bank, 16 saw a “notable” improvement in September, the bank said Oct. 6. “A rate cut isn’t needed to stimulate the economy,” Guillermo Arbe, head of research at Scotiabank Peru, said by phone from Lima. “Companies are seeing their sales holding up better than the headline GDP number would suggest.”
South America’s sixth-largest economy expanded 1.2 percent in July from a year earlier, as the manufacturing, mining and construction industries contracted. While faster than the 0.3 percent expansion in June, the figure is well below last year’s 5.8 percent gain in gross domestic product.
Nascent Rebound
Improving business sentiment and employment growth indicate the deceleration has touched bottom, though higher public investment is needed to strengthen the recovery, Arbe said.
The government probably will announce a “short-term” fiscal stimulus as spending measures announced in recent months are taking longer than expected to implement, Finance Minister Alonso Segura told lawmakers Oct. 1. Fiscal stimulus executed this year will equate to 1.2 percent of GDP, Segura said, less than the 1.6 percent approved by the Finance Ministry between May and July. Copper, Peru’s top export earner, has dropped 11 percent in New York this year, damping mining investment in the third-largest producer of the metal. Increased output from new mines and infrastructure investment will spur 6 percent economic growth next year after a projected 3.5 percent expansion this year, central bank President Julio Velarde said Sept. 30.
Consumer prices rose 0.16 percent last month, taking the annual inflation rate to 2.74 percent. The central bank, which targets inflation in a range of 1 percent to 3 percent, sees price growth slowing to 2 percent next year from the 2.8 percent forecast for this year.
source: Bloomberg