Dollar Extending Gains Against Commodity-Sensitive Currencies

February 7, 2020

The dollar rose overnight by a further 0.7% against the kiwi, peso, Russian ruble, and Aussie dollar and by 0.5% relative to the Chinese yuan. The dollar dropped 0.3% versus the yen and 0.1% vis-a-vis sterling but is unchanged against the euro.

Intensifying concern about the spreading coronavirus epidemic provided an excuse for profit-taking in most equity markets. In turn, ten-year sovereign debt yields are down five basis points in the United States and by two bps in Germany, Japan and Great Britain. Gold rose 0.7%, while WTI oil has slipped back 0.3%.

U.S. January labor statistics were generally better than forecast. Non-farm payroll jobs jumped 225k, and average hourly earnings increased posted a 3.1% on-year advance versus 2.9% in December. The jobless rate backed up 0.1 percentage point to 3.6% mainly in a reflection of an increase of job seekers. Labor market participation continues to rise.

Canada’s labor force survey was also strong. Unemployment fell to 5.5%. 34.5k new jobs were created last month, and the 12-month increase in average hourly earnings jumped 0.6 percentage points to 4.4%.

The most disappointing data announcement this Friday was a 3.5% monthly plunge in German industrial production in December, the biggest such drop since January 2009. Output was 6.8% below its year-earlier level.  Likewise, French industrial production sank 2.8% on month and 3.0% on year in December. In the same month, Spanish industrial production fell 1.3% versus November and rose just 0.8% on year.

China’s trade surplus settled back to a 2-month low in January of $39.16 billion. Exports were a robust 9.1% greater than a year earlier, whereas imports fell by 1.5%. China’s forex reserves totaled $3.088 trillion at end-January, $20 billion less than at end-2019, but Japanese reserves last month jumped $18.5 billion to $1.342 trillion.

Japanese real household spending continues to reel in the aftermath of October sales tax hike, posting a year-on-year drop in December of 4.8% after declines of 2.0% in November and 5.1% in October. Japanese index of leading economic indicators recovered slightly in December to a 2-month but still highly depressed level, and the index of coincident economic indicators was unchanged from November’s 81-month low. Nominal labor cash earnings in Japan were unchanged in December from a year earlier, and real labor cash earnings suffered a 0.9% drop.

Germany’s current account surplus ended 2019 on an up note of EUR 29.4 billion and totaled EUR 266 billion for last year as a whole versus EUR 246 billion in 2018.

Italian retail sales rose 0.5% in December and 0.9% from a year earlier.

Britain’s Halifax house price index accelerated to a 4.1% 12-month rate of increase in January compared to 1.9% in January 2019.

Mexican CPI inflation accelerated to a 6-month high of 3.24% last month, and consumer confidence in that economy improved slightly to a 4-month high.

The AIG-compiled Australian services sector purchasing managers index fell 2.1 index points to a 6-month low in January. Earlier, the manufacturing PMI had been reported at 45.4, a 55-month low.

On the central banking front,

The National Bank of Romania‘s monetary policy rate was left unchanged at 2.5%, its level since a pair of 25-basis point hikes in February and May of 2018. Inflation is above target but expected to decelerate.

The Central Bank of Russia’s one-week repo rate was reduced further today. The cut was 25 basis points to 6.0%, matching similar moves in December, September, July, and June. Last October, such was cut by 50 basis points. A released statement flags the possibility of more easing ahead insofar as inflation has dropped more sharply than officials were expecting.

Australia’s quarterly Monetary Policy Statement revised projected growth lower, citing the coronavirus scare. Officials consider a future further cut of the official cash rate possible.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.





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