Amid light news, the downward pressure on the US dollar has continued against the majors but is more mixed against the emerging market currencies. The key driver is illustrated by the spate of comments from the Fed's Fischer, the ECB's Draghi, and BOJ's Kuroda.
Fischer indicated that he agreed with the majority that a Fed hike this year may still be appropriate. However, his remarks were tempered by the caveat that it was an expectation, not a commitment.
In contrast, Draghi claimed that the ECB's asset purchases were having a greater impact than initially anticipated, even though the staff revised down its forecasts for growth and inflation. Indeed, tomorrow, the euro area will likely learn that the fall in industrial production in August largely offset the gain in July. It will be the third decline in four months. On Thursday, the slip back into negative inflation reading in September will likely be confirmed. The euro's pre-weekend gains were marginally extended with the $1.1400 level remaining intact through the European morning. Above there the $1.1460 high from September 18 beckons.
Japan's Kuroda assured investors that the BOJ will provide more stimulus if necessary. However, he did not sound as if he thought it was necessary. He wants to look past the impact of the decline in energy prices, without which Japan's CPI would be in line with core readings in Europe. The dollar has been confined to less than a quarter of a yen range against the Japanese unit.
The bottom line is that the Fed is on hold until at least December (and many are pushing lift off into late-Q1 16 or even early Q2), and other major central banks do not seem to be in hurry to ease policy further. This appears to be spurring an unwind of long US dollar positions.
The Australian and New Zealand dollars continue to lead the way. Since the start of the month, the only major currency to do better has been the Norwegian krone, which is up 5.5% compared with 5% gains in the Aussie and kiwi. The krone has been aided by the recovery in oil prices and firm CPI, which deters speculation of an imminent follow-up rate cut.
The Australian dollar is extending its advancing streak to the ninth session today. It is testing the 100-day average near $0.7370. There is congestion from August around $0.7400. Chinese trade figures and Australia's own September employment report due in the coming days may pose risks. The RBA meets on October 19 and is unlikely to be happy with the currency's strength.
Since September 23, the New Zealand dollar has appreciated about 4.5 cents against the US dollar. Except for one day (October 1), when Bloomberg shows it unchanged on the session, the New Zealand dollar has moved higher. It closed above its 100-day moving average twice before the weekend and is extending those gains today. The next hurdle is seen in the $0.6770-$0.6800 area.
The US dollar recorded 11-year highs against the Canadian dollar at the end of September near CAD1.3460. Before the weekend and continuing today, the greenback is testing the CAD1.2900 area. The forces besides the pushing out of the Fed's lift-off include constructive Canadian data and the rally in oil prices. The next area of support for the US dollar is seen near CAD1.2870.
Canada's markets are closed today, as were Japan's. The US stock market is open, but the bond market is closed. Three Fed officials speak today. Evans' (dove) and Lockhart's (hawk) views are known. Brainard has been more neutral, and hence a shift from here, a Governor as opposed to a regional president, would be noteworthy.
Lastly, turning to China, we note that stocks rallied strongly on heavy volume, extending their post-holiday rally. The Shanghai Composite has gained nearly 8% since returning from the national holiday last Thursday. One of the drivers is the anticipation of more stimulus. The PBOC announced over the weekend it was extending is relending program, Premier Li indicated more fiscal support to modernize poor areas, and the Deputy Governor of the PBOC told the IMF audience that the stock market correction is nearly over. Many expect that this week's trade and inflation data will prompt more PBOC easing.