Dollar Posts Second Day of Losses as Peso Gains After Rate Hike

Updated on
  • Greenback still heading for best weekly gain since April
  • Loonie, Mexican peso lead advance against the dollar

The dollar dropped for a second day as oil prices rebounded and U.S. Treasury yields fell.

The Bloomberg dollar index fell about 0.2 percent, led by losses against the Canadian dollar and the Mexican peso. The loonie bounced back on the heels of crude’s rally and surprisingly strong retail sales data, while the peso gained after Banxico proceeded with a planned rate hike.

  • USD/MXN dropped to ~18.1145 after earlier falling as low as 18.0326. Mexico’s central bank raised its key rate 25bps to 7% Thursday, meeting estimates of 26 of 27 analysts surveyed by Bloomberg. The peso shrugged off the central bank’s message that the current policy rate is "congruent" with inflation convergence to the 3% target
  • USD/CAD fell as much as 0.9%, the biggest drop since June 12, as Canada retail sales rose 0.8% m/m vs est. 0.3%. WTI was trading near $42.80 late in the day, down from a session high of $43.32 per barrel after falling to a 10-month low of $42.05 on Wednesday. Additional CAD positive comes from Berkshire’s investment in Home Capital, allaying fears of a housing collapse
  • The Bloomberg dollar index more than halved its Tuesday gains. Still, the index is up ~0.5% on a weekly basis, the best return in more than two months. The greenback was mixed against G-10 peers, with slight gains against the euro and Aussie. The kiwi and the Norwegian krone held on to overnight gains spurred by central bank decisions
  • EUR/CHF fell as low as 1.0835, lowest since May 5, after Swiss National Bank Governing Board member Andrea Maechler said that Switzerland’s growth must be robust enough to handle a rate hike
    • “Though she was talking it down, probably the fact they brought up rate hikes got the market a little excited,” Jefferies strategist Brad Bechtel said
  • EUR/USD was trading near 1.1152. Spot is supported by options clustered between 1.1150 and EU1.5b of 1.1175 expiries, as well as fresh lows in bund yields
  • GBP/USD rose to session high 1.2691 in late NY trading, breaking through a tight range of ~1.2655/85 that it was contained in most of the day
  • USD/JPY was trading ~111.31 vs session high 111.45, after briefly breaking below 111.00 in overnight trading. The pair was supported by model accounts buying CAD/JPY after the spike in oil and gain in U.S. 10y yields ahead of 30y TIPS auction; offers seen at 111.75 and above
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