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01 Dec 2014

Dollar weakens against backdrop of recovering oil and gold prices

United States Dollar: The dollar weakened on Monday morning but as well as this, the pound reacted positively to better than expected UK Manufacturing PMI. The data showed that UK manufacturing picked up in November as the CIPS’s index rose to 53.5 vs. expectations for 53.1. Cable rose throughout the day, bouncing off of 1.5605. It eventually traded to a high of 1.5757 come the afternoon session, this despite the release of stronger than expected ISM Manufacturing PMI which came in at 58.7 vs. projections of 57.9. In other news yesterday, gold and oil prices retraced. WTI Crude has recovered off of $63.75 and trades at $68.5 currently. The commodity currencies, notably the Canadian dollar, have pushed higher as a result, heaping downward pressure on the greenback. Fed members William Dudley and Stanley Fischer were also speaking yesterday - Fischer said that the US could be about to see a jump in wages and that “the lower inflation that we’ll get from the lower price of oil is going to be temporary”. The hawkish comments failed to have a significant impact on the dollar, although it is slightly stronger this morning – GBP/USD trades at 1.5705 currently. UK Construction PMI is due this morning at 9:30. Later in the day we are due to hear from Fed Chair Yellen, so we could be in for another busy day.

We expect a range today in the GBP/USD rate of 1.5655 to 1.5760

Euro: The euro got off to a bad start yesterday as PMIs printed weaker than expected with Eurozone Markit manufacturing PMI for November printing at 50.1 vs. expectations for 50.4. EUR/USD slumped to a low of 1.2420. It found good support at this level and proceeded to recover throughout the day as the dollar weakened and commodity prices turned. It made a couple of attempts to break 1.25 but failed to make a sustained move and has actually drifted lower in Asia to open this morning at 1.2440. Meanwhile, the single currency has weakened vs. the pound over the last 24 hours and GBP/EUR opens in London at 1.2635.

We expect a range today in the GBP/EUR rate of 1.2590 to 1.2660

Aussie and Kiwi Dollars: With the recovery in commodities, both the AUD and NZD have made mild gains since the start of the week. Also supportive of the AUD overnight was the release of better than expected Australian Building Approvals data, which rose 11.4% in October vs. expectations for 5.2%. The RBA also delivered their monetary policy statement on Tuesday but said nothing new or surprising. They kept interest rates unchanged and said that there was likely to be a period of stability in interest rates. They also reiterated that the AUD exchange rate was too high. AUD/USD opens in London at .8495 and NZD/USD trades at .7855. Kiwi traders will be eyeing today’s dairy auction closely – this could well cause volatility in NZD/USD this afternoon.

We expect a range today in the GBP/AUD rate of 1.8420 to 1.8600

We expect a range today in the GBP/NZD rate of 1.9930 to 2.0100

Data Releases

AUD: AIG Services Index, GDP q/q

EUR: PPI m/m

GBP: Construction PMI, BRC Shop Price Index y/y

NZD: GDT Price Index

USD: Fed Chair Yellen Speaks, Construction Spending m/m

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