Euro Finds Support in ECB Policy, Dollar Down
SEPTEMBER 12, 2019
The U.S. Dollar is trading in mixed ranges, swinging wildly against the Euro as the European Central Bank holds its press conference after deciding to accommodate the financial environment with monetary easing.
Meanwhile, commodity-based currencies are enjoying a surge in stocks and the optimism behind markets is lifting them a bit counter to the greenback. In general, the buck does not carry much momentum and with expectations that the Fed will cut interest rates further, the dollar could depreciate a bit more ahead of next Wednesday’s meeting.
China’s olive branch yesterday in expanding agricultural purchases from the U.S. also improved the Oceanic currencies: AUD and NZD. We think that as trade news come in the positive, slowly but gradually many currencies will recover after hitting multi-month and multi-year lows earlier in 2019.
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The Euro seems poised for a comeback as the intervention by the European Central Bank is being welcomed by Euro-watchers. As mentioned in yesterday’s Euro note, there was a chance that the return to aid would be a good development for both the Euro-zone economy and the currency’s prospects for appreciation. Indeed, that is what is happening.
The ECB chose not to cut their interest rate into negative territory, leaving the benchmark rate at 0.0%, but did change the Deposit rate that was already negative at (-0.4%) to (-0.5%). This may not be a welcome item by German banks and others that barked at going further into negative interest and possibly charging savers’ deposits.
However, the bank will begin purchasing bonds again as it plans to re-start it quantitative easing program at EUR 20.0 billion/monthly starting November 1st. As the ECB and Draghi made the case for boosting economic activity, he was once again adamant that these monetary measures would not be efficient, just like previous decisions, unless they are accompanied by expansion in fiscal expenditures. Governments must get away from austerity for these loose tools to work.
The Canadian Dollar is half a percent weaker against the buck following the fall in oil prices based on speculation that oil-producing countries such as Venezuela and Iran could face less sanctions and tension with the United States. As the trade war has caused uncertainty over many established dynamics of commerce, the Canadian economy has been a bit anemic, but its central bank is not looking to go into loosening current policy.
While oil downfall may put a dark cloud over the “loonie,” it could lose its effect as investors seeking yield mover towards Cad-denominated assets that can offer a return amid so many regions going into monetary easing and slashing interest rates. We think the currency will survive these market tests.