Forex Today: Major pairs hold steady to start new week
Here is what you need to know on Monday, October 19:
The trading action in financial markets remain subdued at the beginning of the new week, with major currency pairs staying close to the previous week's closing levels. In the second half of the day, September Consumer Price Index (CPI) data from Canada will be featured in the economic calendar. Additionally, the Bank of Canada (BoC) will publish its Business Outlook Survey.
The US Dollar (USD) weakened against its major rivals heading into the weekend and the USD Index closed in negative territory to snap a four-week winning streak. Federal Reserve Chair Kevin Warsh's comments caused investors to refrain from pricing in a potential interest rate increase in October and triggered a USD selloff. In the European mornin on Monday, the USD Index stays flat below 102.00, while US stock index futures rise between 0.4% and 1.3%, reflecting a risk-positive market atmosphere.
US Dollar Price Last 7 Days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.16% | -0.70% | -0.05% | -1.29% | -0.04% | -0.84% | -0.64% | |
| EUR | 0.16% | -0.47% | 0.09% | -1.09% | 0.11% | -0.65% | -0.44% | |
| GBP | 0.70% | 0.47% | 0.51% | -0.62% | 0.58% | -0.18% | 0.00% | |
| JPY | 0.05% | -0.09% | -0.51% | -1.11% | 0.11% | -0.78% | -0.48% | |
| CAD | 1.29% | 1.09% | 0.62% | 1.11% | 1.25% | 0.35% | 0.66% | |
| AUD | 0.04% | -0.11% | -0.58% | -0.11% | -1.25% | -0.75% | -0.54% | |
| NZD | 0.84% | 0.65% | 0.18% | 0.78% | -0.35% | 0.75% | 0.18% | |
| CHF | 0.64% | 0.44% | -0.01% | 0.48% | -0.66% | 0.54% | -0.18% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Fed seen staying patient as policymakers weigh tighter financial conditions
Economists at Deutsche Bank continue to expect the Fed to stay on the sidelines at the upcoming October FOMC, saying their base case is that “the Fed [will] remain on hold at next week’s October meeting, allowing policymakers more time to assess the underlying inflation trend and the tightening in financial conditions from the recent rise in global yields.” They stress that “there is plenty for the Fed to consider even though officials are now in blackout,” with the pause framed as an opportunity to evaluate how higher market rates are feeding through to the real economy and price pressures.
During the early trading hours of the Asian session, the data from China showed that the Gross Domestic Product (GDP) expanded at an annual rate of 4.5% in the third quarter. This reading followed the 4.3% growth recorded in the second quarter and came in better than the market expectation of 4.4%. Additionally, Industrial Production increased by 5.5% on a yearly basis in September, while Retail Sales rose by 1.1%. Both of these figures surpassed analysts' estimates.
AUD/USD gathers bullish momentum on Monday and trades near 0.6980, rising about 0.5% on a daily basis. Reserve Bank of Australia (RBA) Assistant Governor Chris Kent said on Monday that a reasonable indication is that neutral rates are increasing domestically and globally but added that it’s difficult to pinpoint the neutral rate amid high uncertainty.
US President Donald Trump said he cut a diesel export deal with Russia and blocked numerous sanctions because he doesn’t want to drive Vladimir Putin away from peace talks with Ukraine, Bloomberg reported on Sunday. In the meantime, a secretary of Iran’s Supreme National Security Council, Mohsen Rezaei, warned on Sunday that Tehran has prepared a new retaliation plan for any renewed US-Israeli attack, as maritime authorities reported several separate attacks on commercial vessels around the Strait of Hormuz, as per CNBC. After rising for seven consecutive trading days, crude Oil prices correct lower on Monday, with the barrel of West Texas Intermediate (WTI) losing more than 2% on the day.
USD/JPY stays quiet in the European morning on Monday and fluctuates in a tight channel at around 158.00. Earlier in the day, Bank of Japan (BoJ) Governor Kazuo Ueda said that anchoring core inflation near 2% grows more crucial and argued that long-term interest rates likely to rise steadily with policy if they raise the short-term policy rate.
EUR/USD stays in a consolidation phase at around 1.1200 after ending the previous week marginally higher.
GBP/USD benefited from the broad-based USD weakness and gained 0.7% last week before stabilizing above 1.3300 on Monday.
USD/CAD remains under bearish pressure after posting large losses on Thursday and Friday and trades at its lowest level in nearly a month below 1.4100. Investors expect the CPI inflation to rise by 0.2% on a monthly basis in September following the 0.1% decline recorded in August.
Gold edges higher toward $4,200 in the European session following the volatile action seen in the previous week.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
