Global Markets Down, U.S. Dollar a Mixed Bag

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Global Markets Down, U.S. Dollar a Mixed Bag

JANUARY 23, 2020

The U.S. Dollar is trading in mixed ranges as markets digest central bank meetings around the globe while the health situation in China has become more hectic.

Overview

Overnight, we learned that China’s authorities decided to put the city of Wuhan in lockdown in order to prevent further outbreaks. The timing is terrible for the Chinese economy as travel and tourism are supposed to pick up to observe the Chinese New Year. Naturally, commodities have gone down in price, stock indexes as well, and safe havens such as JPY are up. Oil dropped to its weakest value since the beginning of December.

Although things in China are not looking ideal, the Australian Dollar is climbing after labor data impressed with December jobs registering three times higher than expected. Naturally, this brought the Unemployment Rate down from 5.2% to 5.1% and decreases the chances of a cut to interest rates from the Reserve Bank of Australia.

Today’s U.S. Jobless Claims showed an increase in December from the month prior. More impact to FX flows shall be expected from Purchasing Managers; Index figures here, Britain and the Euro-zone. Traders are hoping the situation improves in China and avoid a SARS-like crisis as experienced in 2003.

What to Watch Today…

  • No major events scheduled for today.

Complete Economic Calendar can be found here.

EUR

The Euro is is swinging back and forth as a result of dovish comments about tariffs yesterday from President Donald Trump and Commerce Secretary Wilbur Ross, who stated that while they root for “peaceful resolution” to differences, they plan tariffs that would affect automotive trade. At the moment of writing, the new European Central Bank President Christine Lagarde was speaking in the post-ECB-meeting press conference explaining the need for fiscal spending and restructure by member nations to push economic growth.

One positive note from the meeting said that the ECB will continue to stimulate the economy via quantitative easing until before they raise interest rates. Just the mention of possible increase of rates is good, but no mention of how long QE will remain. Lagarde sees U.S.-China trade agreement as a relief step for those looking to reduce uncertainty. She also mentioned her desire for EU countries to work towards a banking and capital markets union. Ultimately, she wants more integration, and this could bode well for the shared currency down the line.

CAD

The Canadian Dollar fell to its weakest ranges since Christmas season following a pessimistic outlook from the Bank of Canada. Indeed, the BOC Governor Steven Poloz described a poor fourth quarter performance that could be temporary, but officials removed “appropriate” from their language in describing monetary conditions in the economy.

While global demand being low in 2019 was a major factor, we foresee a recovery for the currency and the economy since USMCA is going to be implemented and it is not an election year, which could focus on another boost in oil pipeline projects. Output may be a concern because of ongoing stagnation, but we doubt that the BOC will cut rates in March. Odds of that occurring now stand at 25.5%.

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