Dollar in Rally Mode; Commodity Currencies Drop
AUGUST 19, 2021
The U.S. dollar is in full rally mode this morning, reversing losses from yesterday afternoon.
The dollar initially sank after the release of the minutes from the Federal Reserve’s latest meeting. As is often the case, the first move was the wrong move. Markets are now choosing to focus on the fact that most officials agree that they could start “tapering” bond purchases this year. As a result, equity futures are down and the dollar is up against most of its major rivals.
Running the risk of sounding like a broken record, expectations that the Fed will give markets guidance as to the pace of “tapering” at next week’s Jackson Hole event is that largest risk event the rest of the month.
The sell-off in global markets is not only due to the Fed but also increasing fears that the delta variant of the coronavirus will stifle economic recovery. Sadly, the U.S. recorded over one thousand Covid-19 deaths yesterday alone.
This morning’s economic docket is expected to show a continuation of the positive trend in weekly jobless claims. However, the data is unlikely to change the direction of the U.S. dollar. The Bloomberg Dollar Index is at the highest level since November.
What to Watch Today…
- Weekly jobless claims at 8:30 a.m.
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The Euro has proved more resilient than some of its G-10 peers in the face of widespread U.S. dollar strength. EUR/USD is still testing recent lows, however. The Euro may have carved out a near-term floor versus the greenback. However, we could see renewed weakness in the coming weeks of the Fed indicates they are closer to removing quantitative easing on the way to eventually raising interest rates.
Commodity-based currencies are getting crushed to start the day. Bloomberg’s gauge for commodity prices plunged to a one-month low. The price of WTI fell for a sixth straight day adding more pressure on the Canadian dollar which now trades at the weakest level since February.
The Australian dollar has lost 2.5% over the past three days. Australia experienced its worst day since the beginning of the pandemic yesterday. Both the Australian and New Zealand dollars are trading at their weakest level since November versus the greenback.