Prices: A Week In A Day

Canadian Dollar

The US dollar rose against the Canadian dollar for a fifth consecutive week. Nevertheless, slipping 0.1% against the greenback meant that the Loonie was the best performing among the dollar bloc. It is helpful to keep in mind the drivers. The two-year interest rate premium the US offers over Canada has narrowed by about 10 bp so far this month. It has compressed from 85 bp in March to almost 15 bp before the weekend. Of three drivers, the interest rate differential is the only one supportive of the Canadian dollar, the other two, the S&P 500, as a proxy for risk appetites, and oil prices, have been less constructive. The S&P 500 has declined for four consecutive weeks. The price of WTI has fallen for three of the past four weeks, including last week's 1.2% drop, all of which seemed to be in response to China's announced tariff on US oil and the implications of slower growth on demand. The US dollar stalled by CAD1.3350 and a break of CAD1.3250 would help confirm a top is in place, which the technical indicators suggest is likely. This could see CAD1.3150 initially. 

Australian Dollar

The Australian dollar lost about 0.35% last week to extend its losing streak for the fifth consecutive week. It successfully tested the lower end of its range (~$0.6735) ahead of the weekend, but the bounce was not inspiring. It stalled ahead of the previous day's high (~$0.6785). It is difficult to be enthusiastic toward the Aussie this side of $0.6800. It probably requires resurfacing above the $0.6830 area to boost the chances that a low is in place.  

Mexican Peso

The dollar closed at its best level of the year against the Mexican peso (~MXN19.92). It is the fifth consecutive weekly gain. It is a function of investor concerns about AMLO at the same time that the world outlook has soured and the fear that the US is headed into a recession. Emerging market currencies have broadly fallen out of a favor, for which the peso is often used as a proxy. The technical indicators are getting stretched but do not seem to stand in the way of a push through MXN20.00. Trendline support is seen near MXN19.75, while last week's low was closer to MXN19.65.  

Chinese Yuan

It has been 15 sessions since Chinese officials allowed the dollar to rise above CNY. It has fallen in 10 of the sessions, including the last seven. That said, it declined by 0.75% last week and about 1% over the streak. The dollar extended its gains against the offshore yuan (CNH) after the onshore yuan (CNY) was no longer available points to the market's bias. The dollar rose from about CNH7.10 to CNH7.14. Even though corporate America seems to be scoffing at President Trump's order that American business immediately begins looking for alternatives to China, it may have a chilling effect. Chinese officials will try to absorb some of the downside pressure on the yuan by setting the reference rate for the dollar lower than the bank models project. The latest escalation in the trade war nevertheless raises whatever target many had anticipated for the exchange rate once CNY7.0 was breached. We had thought CNY7.10 area, but this now too low.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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