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11 Mar 2015
USD in the midst of taking another leg higher – Scotiabank
FXStreet (Barcelona) - Camilla Sutton CFA, CMT, Chief FX Strategist at Scotiabank, explains the reason behind USD’s gains against every major currency.
Key Quotes
“On a year‐to‐date basis it has gained against every major currency; on a month to‐ date basis the losses have also been large, with EUR down 5%, and GBP, JPY, AUD and CAD down 2%.”
“This shift to a stronger USD has come on the back of several themes that are all coming to forefront in tandem:
Fed interest rate hikes are approaching—the Fed has laid out a clear criteria for interest rate hikes, essentially that labour continues to strengthen and core CPI stabilizes; recent data supports these paths and has therefore fuelled expectations that ’patience’ will be removed in next week’s statement and pulled forward interest rate hike expectations. We agree with this pricing.
Emerging markets—as the Fed interest rate cycle approaches and global data has continued to point to low global growth, EM currencies have come under pressure. In fact several EM currencies have proven to be leading indicators, depreciating significantly in the days ahead of EUR’s collapse. EM outlows driving risk aversion is supportive of the USD.
The ECB has begun buying bonds under its QE program, highlighting the dramatic and building policy divergence between the U.S. and Europe.
China’s data started off on a strong foot with a jump higher in exports and inflation but has shifted to disappointing releases that suggest a loss of momentum in the Chinese economy.
Commodities are vulnerable to downside pressure on the back of a modest global growth environment, large supplies in some commodities (particularly oil) and the strength in the USD.”
“Together these developments have shifted in tandem to support the recent strength in the USD.”
Key Quotes
“On a year‐to‐date basis it has gained against every major currency; on a month to‐ date basis the losses have also been large, with EUR down 5%, and GBP, JPY, AUD and CAD down 2%.”
“This shift to a stronger USD has come on the back of several themes that are all coming to forefront in tandem:
Fed interest rate hikes are approaching—the Fed has laid out a clear criteria for interest rate hikes, essentially that labour continues to strengthen and core CPI stabilizes; recent data supports these paths and has therefore fuelled expectations that ’patience’ will be removed in next week’s statement and pulled forward interest rate hike expectations. We agree with this pricing.
Emerging markets—as the Fed interest rate cycle approaches and global data has continued to point to low global growth, EM currencies have come under pressure. In fact several EM currencies have proven to be leading indicators, depreciating significantly in the days ahead of EUR’s collapse. EM outlows driving risk aversion is supportive of the USD.
The ECB has begun buying bonds under its QE program, highlighting the dramatic and building policy divergence between the U.S. and Europe.
China’s data started off on a strong foot with a jump higher in exports and inflation but has shifted to disappointing releases that suggest a loss of momentum in the Chinese economy.
Commodities are vulnerable to downside pressure on the back of a modest global growth environment, large supplies in some commodities (particularly oil) and the strength in the USD.”
“Together these developments have shifted in tandem to support the recent strength in the USD.”