This week, the US dollar was tracked within a range of 103.290-104.400 in the DXY index. This index (highly weighted to the Euro) is down for the week by -0.49%. The decline was initially triggered this week by the US ISM Services data which came in below expectations. In that report, released on Monday, the May 2023 index came in below expectations with a reading of 50.3 versus the expected 52.2. The numbers indicate a decrease from 51.9 previously. Seeing a decline in the non-manufacturing index indicates potential weakness outside of the commodities sector.
Within the report:
- The Employment Index fell to 49.2 from 50.8 in the previous month.
- The new orders index fell to 52.9, below the expected 56.1.
- The price-driven index fell to 56.2, the lowest level since May 2020, from 59.6 earlier.
- New export orders, imports, and order backlogs declined from last month’s numbers, coming in at 59.0, 50.0, and 40.9, respectively.
The greenback’s decline deepened when the Reserve Bank of Australia (RBA) on Tuesday unexpectedly raised its interest rate to 4.10% and signaled further tightening of inflation control. The Australian dollar subsequently rebounded from a week’s low of 0.6578 on Monday to a high of 0.6750 on Friday. The price closes the week near the 100-day moving average for the pair at 0.6740. Next week, a move above the moving average away from it will be necessary to increase the bullish bias. If there is a corrective move lower, the 200-day moving average at 0.66905 will be looked for for bullish clues. Staying above the correction, it will signify that the bullish tones will remain.
On Wednesday, the Bank of Canada (BoC) also raised interest rates by 25 basis points due to insufficiently accommodative monetary policy and ended the pause that had been in place for two consecutive meetings. USD/CAD fell to Wednesday’s low of 1.3320 (CAD high). The market price of the USD/CAD pair traded up and down on Thursday and again on Friday. Weaker-than-expected Canadian jobs data today lifted USDCAD to a high of 1.33688 from a pre-employment low of 1.33157, but when the price can’t extend to the bearish 100 hourly moving average (it currently is) at 1.33813), dollar sellers came back to push the rate down again to test the May low near 1.33132. Buyers leaned in against the low and the price rebounded slightly higher to close at 1.3340. In the coming week, if the USD/CAD price cannot cross the 100-hour moving average, sellers will remain in control and a breach of the May low can be expected.
Despite the central bank’s two hikes this week, the market still expects no change in FOMC rates when they meet on Wednesday. This bias was reinforced on Thursday of this week when Initial Jobless Claims rose to the highest level since October 2021. Jobless claims rose to 261K, well above the estimate of 235K.
Ahead of Wednesday’s interest rate decision, the Federal Reserve will get its last major bit of economic data with the US CPI scheduled for release at 8:30 am on Tuesday. Expectations are for a gain of 0.2% MoM, and for the annualized measure to fall to 4.1% from 4.9%. Last month’s gains from last year brushed off the year-on-year inflationary numbers as they took off. The year-over-year figures are down from a high of 9.1% in June 2022 and have another big month-over-month number coming up at 1.3% lower when the June CPI is released in July. That would bring the annual rate into the low 3% range, but still well above the Fed’s 2% target. Going forward, it’s going to take numbers per month of 0.0% to 0.1% to hit the 2% target in 2023 which while possible, would be a stretch. Adam wrote about mathematics in his post here. Required reading over the weekend.
A look at the US dollar’s changes this week with the major currencies shows that the US dollar was lower against all of the major currencies with the largest declines against the Australian and New Zealand dollars.
- Euro, -0.38%
- Australian dollar -2.08%
- New Zealand dollar – 1.16%
- GBP, -1.06%
- CHF -0.62%
- Canadian Dollar, -0.59%
- Japanese Yen, -0.36%
In other markets this week:
- Crude Oil fell -2.19% as growth concerns in China weighed on the price
- Gold rose by a modest 0.68%, supported by the dollar’s decline
- Silver rose 2.77%
- Bitcoin Price Drops To -$651 Which Looks Very Good Given The SEC Sues Binance And Coinbase
In the US stock market, the Nasdaq rose for the seventh week in a row and the S&P rose for the fourth week in a row although the gains were modest:
- The Dow Industrial Average rose 0.34%.
- The S&P rose 0.39%
- The Nasdaq rose 0.14%.
US yields rose this week, despite the dollar’s decline and expectations of no change from the Federal Reserve. Investors are preparing for an estimated $1 trillion in Treasury issues as part of the latest debt ceiling decision, and that led to some support in yields especially at a shorter end this week.
- The two-year yield is 9.5 basis points
- 5 year return 7 base points act like there’s no key didn’t know you go so far in the hive only didn’t know when to see you would you mind finding my window
- 10-year yield of 4.7 basis points
- The yield has not changed for 30 years
Thanks for your support this week. I hope you have a good weekend.