The US dollar yo-yo on economic data and tapering continues on Monday, in a pattern we’ve already highlighted. EUR and NZD are the strongest currencies of the day, while GBP is the weakest.
A trend continues to repeat itself in US dollar trading. Positive headlines on economic data give it a boost, then it slowly bleeds out the gains. We’ve seen it three times now with CPI, Fed minutes and more recently with Markit’s PMIs. The latter’s unwinding began on Monday as the dollar fell on a risk-positive tone, with yields remaining stubbornly low. The fact that the cases of global covidies are decreasing, including in India and Brazil, is at the origin of some outflows of dollars. We are still in the period where the United States is open and most of the world is closed, but that line is going to blur imminently.
Oil is a place to watch closely. A deal with Iran could be reached today, but there is likely to be a price. Crude has rebounded strongly in the past two days after three days of selling Iranian headlines. The focus is increasingly on demand and the likelihood of a driving boom in the coming months, followed by a pickup in business travel later in the year.
Oil is not necessarily a great economic barometer because OPEC + can change everything, but it is the key to the inflation debate. A further rise in crude would signify a new phase of rising prices that could shake global central bankers off their accommodative perch.
Bank of Canada Governor Tiff Macklem has seen enough. On Monday, he explicitly said the phase-down was the right move for the economy. The loonie has been the best performer so far this year and it’s not hard to see why: We’re at the start of the business cycle and commodities have exploded.
Canada was on vacation Monday, but will return to a busy trading day on Tuesday. US data includes a series of home price and new home sales indexes as well as the Richmond Fed and Consumer Confidence.