May 10, 2019 — 4 min read
US dollar Index points lower after soft CPI data
Canadian loonie strengthens over solid employment data.
NYMEX WTI crude oil moves higher adding firmer support to commodity-linked currencies
The Canadian loonie strengthened to its highest level in a week after labour report surprised the market to the upside. Part-time jobs for young workers pushed the headline employment number up by 107,000 in April. The unemployment rate dropped 0.1% percentage points to 5.7%. USD/CAD is now trading near the lower end of recent trading ranges but remains vulnerable to ongoing trade spate between the US and China.
The US dollar is trading lower across the board following the release of a lower than expected inflation number. Consumer Price Index increased 0.3% last month and the needle for core CPI pointing to a sluggish rise of 0.1%.
The latest reading is in line with recent expectations from the FOMC and is unlikely to budge the members from the current “patient” stance. The currency market is, however, showing signs of caution. US tariffs on Chinese imports go higher today and could derail the ongoing trade negotiations between the US and Chinese officials. Investors are seeking the safety of safe-haven while keeping a tab in the Twittersphere.
The first quarterly estimate of the gross domestic product (GDP) in the UK rose to match market consensus at 0.5%. This is also in line with the latest expectations from the Bank of England. The latest readings, however, have to be read with caution. The strength is due to low December 2018 growth in the base period, and further inspection shows real GDP may have contracted in March this year. Services sector slowed to 0.3% due to political uncertainty. The increase in manufacturing is mainly due to a build-up in inventories ahead of Brexit. GBP/USD remains within touching distance of the 1.30 handle.
EUR/USD is holding its movements within recent ranges with a slight positive bias today. Investors are assessing the wider impact of a deterioration in trade talks and new US tariffs on Chinese products. Data releases from the Euro bloc this morning point to a 1% contraction in French manufacturing output. Industrial production in Italy also decreased by 0.9% in March compared to the previous month. With US-EU trade talks next on the cards, the market is cautious about a worsening economic outlook.
USD/CAD is under pressure the morning, down 0.5% after Labour Force Survey revealed strong employment gains. The Canadian economy added 107k new jobs, beating market estimates of 11k. The unemployment rate decreased to 5.7% as more people joined the labour market. The impressive headline number and higher oil prices are likely to support the loonie as we move into the final session of the week.
The AUD is clinging on to valuations in the 0.70s against the USD. RBA monetary policy dialogue remains consistent, and bank officials said again that US-China trade tensions are a significant downside risk to the global economic outlook.
The Yen consolidated around the three-month high against the US dollar. Lower-than-expected CPI data and growing uncertainty over the trade deal between China and the US are encouraging safe-haven flows. US tariffs on Chinese imports go higher today. The market hopes for a last-minute deal to avert a potentially pronounced slowdown in global economic growth.
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