Global Themes

The U.S. dollar carried modest gains of the day before into the midweek session. The dollar notched one-week peaks against the euro and edged up from a one-month bottom against the yen. The dollar caught a modest sentiment bump from what markets considered a better performance by Hillary Clinton in the presidential debates the other night. Mrs. Clinton represents more certainty and continuity of current U.S. economic policies than her Republican rival, Donald Trump, who has talked tough on trade and immigration. Renewed worries about the shape of Europe’s banking sector contributed to the euro’s softer performance. Canada’s loonie stabilized above six-month lows, helped by firmer oil prices above $45. The day ahead will be a busy one with Federal Reserve Chair Janet Yellen testifying on Capitol Hill, plus U.S. numbers on durable goods and business spending.


The 1.3280 level may be a six-month high for USDCAD but it’s also proven stiff resistance for now which helped the Canadian currency stabilize. The loonie also drew support from the perception that Donald Trump, who represents trade uncertainty between the U.S. and Canada, lost momentum after the first presidential debate. A modest bounce in the price of oil to above $45 also helped to dial down headwinds on the Canadian currency. The road ahead of the loonie looks bumpy after last week’s low inflation reading saw odds of a Bank of Canada rate cut by the middle of 2017 increase to around 50 percent.


The U.S. dollar shrugged off the latest durable goods reading which although better than expected showed a softening in business spending, a key barometer the Fed wants to see improve before raising interest rates. Durable goods came in unchanged (0.0 percent) in August, better than forecasts of a 1.4 percent fall. Business spending increased by 0.6 percent, beating forecasts of minus 0.2 percent, but the previous reading got revised downward to 0.8 percent. Lots of Fedspeak in the day ahead, including the Fed chair on Capitol Hill at 10 a.m. ET. Fed hawks, who dissented at last week’s meeting in favor of a rate hike, are also scheduled to speak today.


Sterling seesawed around 1.30 with its upside capped by dovish talk from a Bank of England official who sounded amenable to cutting interest rates from already low levels in the months ahead given elevated uncertainty stemming from Brexit. Unease over Brexit has increased in subdued U.K. data like a Tuesday gauge of retail spending that unexpectedly contracted. Moreover, U.K. lawmakers have done little to quell fears of a potential messy exit from the EU, keeping uncertainty over Brexit front and center.


EURUSD clocked one-week lows with focus today on U.S. and European monetary policies. Both the heads of the Fed and ECB speak today, remarks that could play up the starkly different policy paths, with the former favoring higher rates, and the latter leaning in a low-rate direction. Meanwhile, worries about the fiscal soundness of European banks have also dogged the euro, while data today showed a dimming in German consumer optimism.

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