In this article, we have covered the highlights of global market news about the USD/CAD, EUR/USD, USD/JPY and NZD/USD.
USD/CAD rises from 50 DMA on negative oil prices; weaker US Dollar may curb gains
On the last day of the week, the USD/CAD pair successfully defends the 50-day SMA and draws some buyers at the 1.3570-1.3565 region. During the early half of the European day, spot prices surge over the 1.3600 level and partially undo the previous day’s retracement decline from a one-month high.
Because of concerns that a worse global economic slowdown may reduce gasoline consumption, crude oil prices have been stuck at the YTD low. In addition, the Bank of Canada’s dovish 50 bps rate rise earlier this week is regarded as weakening the commodity-linked Loonie and helping the USD/CAD pair. In contrast, the upward potential is constrained given the pervasive US Dollar selling tendency.
In reality, several reasons have caused the US Dollar Index, which gauges the dollar’s performance against a basket of currencies, to fall back closer to a multi-month low. The most recent optimism on the relaxation of COVID-19 restrictions in China continues to underpin the current improvement in the global risk mood. This and wagers weigh down the US Dollar for less aggressive Fed rate increases.
EUR/USD will suffer only transitory setbacks as long-term inflation falls – Commerzbank
Between market expectations and the Fed’s projection, a chasm is starting. According to Commerzbank analysts, only brief declines in the EUR/USD will be justified by a prolonged drop in inflation.
“The Fed looked eager to disprove market expectations for rate reduction next year and signalled that it is likely to modify its rate forecast (the dots) to the upside at next week’s meeting.”
The possibility for a brief Dollar rally exists if new information causes the market to align more closely with the Fed’s forecast. However, the gap between Fed and market expectations may expand even more.
USD/JPY recovers from multi-day low, still below mid-136.00s despite weaker US Dollar
On the last day of the week, the USD/JPY pair experiences new selling pressure and declines to a multi-day low. However, there is no sustained decline. Around the early European session, the pair pares some of its intraday losses and trades in the 136.25-136.30 range, still losing more than 0.25% on the day.
For the third day in a row, the US dollar continues to lose value amid anticipation that the Fed would ease off on its tightening monetary policy. This is also regarded as putting pressure on the USD/JPY pair. In reality, the markets have been pricing in a 50 bps lift-off in December because they are seemingly persuaded that the US central bank would decrease the speed of its rate-hiking cycle.
The continued drop in US Treasury bond rates is attributed to the likelihood of a comparatively lower rate rise. The US-Japan rate divergence then starts to close, favoring the Japanese Yen and adding downward pressure on the USD/JPY pair. While the downside is limited, pessimistic traders should exercise care.
NZD/USD retakes 0.6400 on lower US Dollar, seeks multi-month peak
On Friday, the NZD/USD pair increased for a fourth straight day, moving back toward the top of its weekly trading range. The pair maintains its small advances during the early European session and trades at the round-number level of 0.6400.
The US Dollar is being dragged by several reasons toward a multi-month low it made earlier this week, which is regarded as a positive for the NZD/USD pair. Rising expectations of the Fed’s policy tightening being less pronounced and a broadly upbeat risk tone continue to put pressure on the safe-haven dollar.
The markets have been pricing in a comparatively lower 50 bps lift-off in December due to their apparent conviction that the US central bank would pause the rate-hiking cycle. The optimism around the relaxation of China’s rigorous COVID-19 rules also supports a resurgence in the perception of risk throughout the world.
Please click here for the Market News Updates from 8 December, 2022.