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Which way for the dollar?

Less than nothing

In terms of its outcome, Monday was an exceedingly dull day for currencies. In the middle, the CAD was on average unhanged. The leading AUD, NZD, SEK and NOK were ahead of it by 0.25%. At the rear, the GBP, USD, EUR, CHF and JPY were roughly 0.25% behind the Loonie.

Without wishing to labour the point, a range of ±0.25% covered all the major currencies. To say that a 0.5% spread is nothing is to exaggerate its enormity. So why the nothing? It is far easier to explain why something has happened than why it has not. The sensation is that investors looked through the worldwide increase in Covid infections to the pending arrival of two or more vaccines against the virus.

On balance, they were inclined to go with the risk-positive cure rather than the risk-negative disease, hence the currency distribution over the day. Investors obviously did not feel strongly about it though.


Arguing to a standstill

An op-ed in yesterday’s Guardian by noted economist Ken Rogoff posed the question: “Exchange rates have been stable in the Covid crisis – are we heading for a storm?” He concluded that it is likely that “the greenback will still be king in 2030… But it’s worth remembering that economic traumas such as we are now experiencing often prove to be painful turning points”.

Overnight, CNBC carried two interviews that emphasised the uncertainty of the outlook for the US dollar. Citibank’s Ebrahim Rahbari sees the USD moving lower while TD Securities’ Mark McCormick foresees renewed demand because “a little bit too much” optimism has been priced into the market. Citi expects a drop of as much as 20% for the USD in 2021, if Covid vaccines become widely available and global trade and growth are revived. Goldman Sachs is less aggressive, looking for a 6% fall next year.

The prospect of a sharply lower USD will not fill Reserve Bank of Australia Governor Philip Lowe with delight: his antipathy to a strong Aussie is well-flagged. The minutes of the RBA’s policy board meeting confirmed that the bank will continue to deliver the assets purchases and low interest rates that will help to limit demand for the AUD.


Jay and friends

It is possible that a paucity of economic data contributed to the lack of currency movement on Monday. If so, today has at least a little more potential. There will be a few more statistics and a handful of central banker appearances; surely one of them will say something interesting.

Monday’s manufacturing survey from the New York Federal Reserve put the index a disappointing four points lower at 6.3. Canadian manufacturing sales were in line with forecast, rising by a monthly 1.5% in September. This morning, Norway followed the recent trend with a third quarter rebound for gross domestic product. Growth of 5.2% followed a 6% shrinkage in Q2. Canadian housing starts and wholesale sales, US retail sales, industrial production and capacity utilisation come later.

Central bank speakers today include the Vice President of the European Central Bank, the Governors of the Bank of England and the Bank of Canada and the Chairman of the Federal Reserve. Tonight RBA Governor Lowe will be out and about, as will the Australian data for new home sales and wages. The UK inflation data will appear ahead of London’s opening on Wednesday.

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