Dollar Gets its Groove Back-For Now

Market Drivers May 15, 2015

Dollar gets is groove back
Comm dollars weakest on the night
Nikkei 0.83% Europe 0.55%
Oil $60/bbl
Gold $1217/oz.
Europe and Asia:
No data

North America:
USD Empire 08:30
USD IP 09:15
USD U of M 10:00

Dollar found a modicum of support in a generally quiet, event free Asian and European sessions as trading started to wind down for the week and traders squared up their positions.

The commodity dollars were the weakest of the bunch with Aussie and kiwi sliding steadily through the night, as profit taking and fresh macro concerns affected the pairs. In New Zealand the dairy producer Fonterra announced that volumes for milk will likely decrease suggesting that demand is declining. If accurate that means one of the principal sources of income for the country is likely to decline as well and could impinge on GDP growth going forward.

Kiwi drifted to below .7450 and could test the .7400 as the day progresses. The pair has had a schizophrenic week first falling on fears that RBNZ could cut as much as 50bp over the next several months, then rising on better than forecast macro data that alleviated those fears. The truth is likely somewhere in the middle. The RBNZ which has been famously hawkish is likely to relent and ease rates once sometime this summer, but the New Zealand economy despite the slowdown in demand from China remains surprisingly resilient and therefore its doubtful that RBNZ will commence an aggressive easing program unless conditions deteriorate significantly.

The Aussie was also under liquidation pressure on the last trading night of the week as traded back towards the .8000 figure on a round of profit taking. The pair soared this week on general dollar weakness hitting levels above the 8100 level not seen since the start of the year. But after putting in such a massive rally it has stalled at these levels and may be signaling the end of the anti-dollar rally for the time being.

Although currency markets remain disappointed with US economic data and have therefore curtailed the strong dollar bias, the majority of economists still believe that the Fed will hike in September. In short, for FX the current price action is now a question of normalization delayed or denied. If the former, the greenback could get its groove back relatively quickly. If the later then the anti dollar move could resume with a vengeance as it triggers liquidation from longer term dollar bulls over the next few weeks.

The consumer remains the key to dollar strength, as this weeks disappointing US Retail Sales amply demonstrated. That's why today's U of M data will be of particular interest to the market. Consensus view is anticipating little change, but if sentiment has deteriorated markedly, the greenback could come under pressure once again as hope of any near term policy move by the Fed begins to evaporate.