Dollar Sees 4-Week High After Better-Than-Expected Economic Data

  • U.S. retail sales, Empire Index and NAHB all beat estimates
  • Loonie falls after drop in home sales, before Nafta talks

BMO's Gallo Sees More Declines Ahead for U.S. Dollar

The dollar rose for a second day, touching its highest since July 20, after July retail sales and the August Empire manufacturing index both rose more than expected.

Even after paring gains, the greenback was higher versus all of its G-10 peers save the Swedish krona. The dollar advanced in line with a move in Treasury yields, which rose to accommodate’s sale of bonds to finance its purchase of Whole Foods. Currency trading flows were modest and liquidity sparse at times, with some European centers closed for the Assumption Day holiday, traders in London said.

  • Investors continue to seek equilibrium amid still-subdued risk appetites as tensions between the U.S. and North Korea appear to have ratcheted down. They are also rebalancing positions in the wake of data that suggest the U.S. economy began 3Q on a firmer footing. On Monday, NY Fed’s Dudley said he would favor another rate increase this year if the economy evolves as expected
    • “It’s time for investors to start thinking a little defensively,” Pimco’s CIO of asset allocation, Mihir Worah, said in an interview on Bloomberg Television; most asset valuations are pretty full, whether in U.S. equities or credit, and big changes (such as the Fed reducing its balance sheet) are on the horizon
  • EUR/USD is trading at ~1.1730 after reaching a 1.1687 low earlier in the session. The Bloomberg dollar index gained as much as ~0.7%, its best showing since Aug. 4, the day the July employment report was released, before paring gains to ~0.4%. EUR filled bids under the Monday low at 1.1770 down to 1.1755 overnight and then extended losses during the U.S. session
    • The euro is mixed vs its G-10 peers after being jostled by cross flows, notably against GBP and SEK, said traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. EUR/USD tested technical support at the Aug. 9 low 1.1689 with a breach opening potential for a move toward the 1.1613 low from July 26
  • USD/JPY rose as much as 1.1% to 110.85, its strongest gain in two months. The JPY was on a defensive footing as a lessening of tensions with North Korea curbed demand for haven currencies. USD/JPY broke above technical resistance from the conversion line on Ichimoku charts that had reliably capped gains for the past month and may now find technical resistance near 111.30, where the 55- and 100-DMAs converge 
  • CAD fell as much as 0.4% vs the USD to its weakest since July 12, weighed by an earlier decline in WTI crude oil and a drop in Canadian existing home sales. Notably, Apple said it will issue bonds denominated in Canadian dollars for the first time. Apple said in a filing that it will use proceeds from the sale to fund stock buybacks, dividends and capital expenditures
    • Negotiations to update Nafta are set to begin Wednesday, which might weigh on CAD; Canada and Mexico largely want to defend the advantages they have enjoyed under the deal, keep it free of tariffs and broaden it to new industries, while President Trump has called Nafta the worst trade pact in history
  • The Commerce Department reported that July overall retail sales rose 0.6%, double the 0.3% median estimate of economists and with strong gains in both ex-auto and ex-auto and gas components. Prior month data were also revised to show gains instead of losses. At the same time, the Empire manufacturing gauge rose to 25.2, surpassing estimates for a smaller gain to 10.0, and the August NAHB housing index rose to 68 vs est. for an unchanged reading of 64
    Before it's here, it's on the Bloomberg Terminal.