Global overview
The U.S. dollar favored the middle of its ranges after lackluster data cemented expectations for the Federal Reserve to hold lending rates steady. The greenback fared mixed as it firmed versus its European rivals but sputtered against commodity currencies like the Australian and Canadian dollars. A surprise rate hike Tuesday from Down Under boosted the Aussie dollar to three-week highs, while the loonie edged up on the eve of a Bank of Canada rate decision. The Reserve Bank of Australia raised rates by 25 basis points to 4.1%, the highest in 11 years, and kept the door open to further increases. The loonie flirted with four-week highs as it largely rode the Aussie’s coattails higher. The greenback’s jobs-driven gains petered out after data Monday showed that a key pillar of U.S. economic strength – the services industry – nearly stalled in May. The disappointing services data served as a reminder that U.S. recession risks remain elevated in the face of high inflation and rising interest rates. Markets currently estimate about a 75% likelihood of the Fed keeping rates at roughly 5.1% on June 14, but reflect about a 65% chance of the central bank hiking in July.
German data continues to disappoint
The euro continues to have a tough time sustaining bouts of strength due to concerns about the health of the bloc’s largest economy. German data continued to disappoint as a gauge of factory orders unexpectedly contracted by 0.4% in April, compared to forecasts of a solid 3.5% rebound following a more than 10% plunge in March. The data suggested that Germany’s recession has stretched into the second quarter. The weakened state of the German economy can limit leeway for the ECB to raise rates to fight elevated inflation.
Sterling subdued along with risk sentiment
Sterling was camped in negative territory for the week against its U.S. counterpart as worries about global growth kept risk appetite in check. A lack of much UK data this week is causing the pound to take its cues from broader market sentiment. The outlook for higher UK interest rates remains a bit of a double-edged sword for sterling as juicier yields burnish its appeal but increasingly expensive borrowing costs do not inspire confidence about the economic outlook.
C$ rides the Aussie’s coattails higher
The Canadian dollar flirted with four-week highs on the eve of a policy decision by the Bank of Canada. The loonie’s firmer bias reflects a market that’s unsure whether Ottawa will remain on the sidelines and keep rates at 4.5%, the highest in 15 years, or raise them to 4.75% amid mounting signs of a resilient Canadian economy. The close call on the rate decision means the loonie could stage a meaningful move up or down, depending on what central bankers announce at 10 a.m. ET Wednesday. Could the RBA’s surprise rate hike be a harbinger for the BOC? The Aussie jumped sharply after the RBA raised rates to 4.1% from 3.85%, and hint at higher rates to come to tame inflation.
Dollar cedes ground on U.S. growth concerns
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Jun 5-9
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
