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By xemarketanalysis May 18, 2018 9:39 am
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    XE Market Analysis: G10 and EM Currencies Rattled by Resurgent US Dollar

    OVERVIEW

    • The Greenback is closing on strongly for the fifth week in a row, 0.11% against the basket of major currencies.
    • Turkish Lira and the South African Rand weakened to fresh lows as EM currencies continue to slump.
    • West Texas Intermediate at $71.57 barrel, up 8 cents amidst geopolitical risks and supply tightening.

    HIGHLIGHT

    Emerging market currencies continue to suffer as we close on this week. US 10 –year yields have been the main contributor to the recent slide. Over the past five days, the Argentinian Peso has lost 4.6%, with the South African Rand and Turkish Lira following closely as the worst-performing currencies. Investors seem to revisit their appetite for risky assets with US Treasuries trading as high as 3.12%. Contagion effects should not be discounted.  

    US DOLLAR

    The US Dollar Index continues to power higher, up 0.11% this morning. The Greenback seems to be too hot to handle these days, supported by strong incoming economic data and Treasury yields. Ongoing Sino-US trade negotiations have so far yielded no concrete announcement, but there is a general sense that the two biggest trading nations will try to strike the right equilibrium. There is no data on the slate today; most of the market moves will be dictated by technical readjustments as we head into the weekend. 

    BRITISH POUND

    The Pound is losing momentum, down 0.2% on the day, closing the week in the red for the fifth week in a row. There are reports that the EU is yet to be convinced by the UK custom border plans. Brexit woes continue to hang over the GBP; a new round of talks start next week. We expect selling bias to prevail in the absence of any market-moving news.

    EURO

    The Euro remains under pressure against the US Dollar. Italian political turmoil has generated unwarranted stress on the single currency. Incoming data flow has also been weak. The EUR/USD is looking for a weekly drop of nearly 1.4%. Liquidity dries up as we head into the weekend, and we expect the pair to hover around the 1.18 regions.

    CANADIAN DOLLAR

    NAFTA is far from a done deal as negotiators find themselves struggling to untangle the 24-year-old trade agreement. The Canadian Dollar is treading waters with a slightly negative tone. It is the only G-10 currency holding against a resurgent Greenback over this quarter. Whilst the fate of NAFTA will have a major impact, investors are also concerned about soft patches in the economy. Core CPI and retail sales data will inject some trading impetus today. 

    AUSTRALIAN DOLLAR

    The AUD is trading flat amidst growing bearish bias against the currency. Wage growth missed expectations and the RBA is expected to sit tight for at least till 2019. AUD/USD is closing the week down, 0.4%.

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