Dollar, Loonie Decline as Euro Outperforms Ahead of ECB Decision

Updated on
  • Rand drops to 2017 low as budget deficits forecast to widen
  • Loonie drops on cautious BOC; ECB meeting eyed for QE details

Dollar Drops Before Fed Chair Call

The dollar ended a three-day winning streak amid wide swings in the Canadian dollar, pound and other currencies.

The Bloomberg Dollar Spot Index fell 0.2 percent. The greenback was mixed versus its G-10 peers, gaining against commodity-dependent currencies and losing the most against the pound and euro. The common currency was higher against most major counterparts ahead of Thursday’s European Central Bank meeting, which may see President Mario Draghi offer fresh guidance on plans to taper quantitative easing. The Canadian dollar weakened the most since July after the Bank of Canada was cautious on the prospect of future rate increases.

  • Sharp swings in peripheral currencies including MXN, ZAR and, to a lesser extent, BRL, also affected major peers. Position adjusting in those currencies, along with AUD and NZD, probably spilled over into yen and euro amid unwind of carry or relative-value trades
  • MXN erased early losses and rose as much as 1.3% vs the greenback, after Mexico’s central bank said it will boost its FX hedges. The peso has been on a defensive footing recently amid uncertainty over Nafta negotiations. ZAR fell more than 2.8% to a fresh 2017 low vs USD after the finance ministry projected wider-than-expected budget deficits 
  • BRL hit a session low vs USD after a report Brazilian President Temer was undergoing urological treatment in a hospital; officials said he will be discharged from the hospital later Wednesday
  • The UST 10Y yield briefly reached 2.4736%, its highest level in seven months, after data showed U.S. durable goods orders rose more than twice as fast as expected in September, led by gains in the volatile transportation sector.
  • On Fed chair watch: Trump is said to have decided against Gary Cohn to lead the central bank, according to three people familiar with the matter; Trump, talking about the search, said “you have to make your own mark,” though incumbent Janet Yellen is “terrific,” according to comments from a Fox Business Network interview to air later
  • USD/CAD was trading around 1.2805 as markets digested the BOC’s “cautious” comment and its decision to leave rates unchanged. The pair earlier hit a session high at 1.2817. Governor Poloz also warned about loonie strength, saying it has had significant pass-through on inflation and negative implications for export growth
    • The comments “pretty much suggest that December and January rate hikes are out of the picture and that we should be looking towards March/April for the next BOC hike,” CIBC currency strategist Bipan Rai said in a client note
  • EUR/USD rose to a fresh high at 1.1818, overcoming offers at 1.1800. EUR gains were marred as GBP rose sharply in the session, though demand for EUR/CAD may have offered support
    • Market expectations for ECB tapering center on the bank trimming purchases to about half the current EU60b/month pace while extending the program for six or nine months beyond the current December end date. There are many permutations around that core expectation that may be perceived as more hawkish or dovish
  • GBP rose vs all of its G-10 peers and to a daily high at 1.3272 vs USD after U.K. 3Q GDP rose 0.4% q/q vs estimates for a gain of 0.3%, adding to the case for a rate hike at next week’s BOE policy meeting
  • USD/JPY was trading near 113.75 vs daily low 113.48 reached as Treasury yields retraced some of their advance. Stops tied to protection of USD longs were tripped under the 113.74 overnight low, a trader in New York said; risk may be for further stops if USD declines toward Tuesday’s low at 113.25
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