Week in FX AMERICA Sept 9-14: Getting Rid of the USD Quickly

The “Big dollar” is likely to lose ground most persistently against higher-yielding EM currencies, especially those, which are considered, undervalued such as the INR and MXN. The JPY is also likely to resume gains in a world where most G10 CBanks are in easing mode. This will surely upset the MoF and BoJ who have been rather vocal in trying to preserve currency normality without it being held to ransom by speculators. The market will need to refocus on the poor Euro fundamentals and Grexit before we see dollar market support again. This market move is “rich.” Despite the bigger than expected Fed stimulus, one hears the rumblings of “diminishing returns of QE.” Many are looking to fade the EUR gains, although so far the only fading would be hard end profits. Counter trading the CBanks, the ECB, Fed and PBoC stimulus can get very costly.

Below are some other highlights of the week:

AMERICAS

• CAD: The trade deficit widened further –CAD$2.34b in July from –CAD$1.93b. Canadian imports declined -2.2% (CAD$40.08b), while exports fell -3.4% (CAD$37.74b). Energy was the largest contributor to the downfall (exports fell -8.5%). The country’s trade surplus to their largest trading partner, the US, edged lower to +CAD$2.1b.
• USD: Import prices were up +0.7% vs. expectations of +1.4% in August, the first increase in five months. The July reading was revised down to -0.7% from -0.6%. The bulk of the increase was due to petroleum prices rebounding, up +4.1%.
• USD: US wholesale inventories rose in July as sales continued to lag (+0.7% to +$485.19b), leaving goods sitting in warehouses longer. The wholesaler sales dropped slightly, falling -0.1% in July to +$402.4b. July wholesale to sales ratio is 1.21 a level not seen in nearly three years.
• CAD: Canada’s new housing price index inched up by +0.1% in July from +0.2% in June. Higher material and labor cost led the house price advance.
• USD: US wholesale prices, last month posted the largest one-month gain in three months, again proof that energy costs could again provide inflationary pressures. PPI increased a seasonally adjusted +1.7% in August. The biggest gain in three years was largely due to energy prices rising +6.4% m/m.
• USD: Initial claims for unemployment insurance rose +15k from +367k to +382k. The prior weeks figure was revised up +2k. Non-seasonally adjusted figures dropped below +300k for the first time in 5-years.
• FED: In addition to continuing to buy long bonds under the “twist” program, the Fed will add +$40b per month in purchases of agency MBS securities as they launch a new round of QE, leaving them buying +$85b per month for the balance of the year under the two programs. The buying will continue until the labor market improves “substantially”.
• CAD: Canadian manufacturing shipments plunged in July, hitting their lowest level in 12-months on weakness in the auto and aerospace sector. Unfilled (-1.2%) and new orders (-5.6%), both forward indicators also fell in the month. Factory sales fell -1.5% to +$48.3b, ex-autos and sales dropped -1.4%. Euro-zone uncertainties and US fiscal policy has dampened demand amongst companies and households.
• USD: US consumers saw the largest one month price increase in August (+0.6%) in three-years. Ex-food and energy and CPI rose a mild +0.1%. Expect middle-east tension to continue to push food and energy prices higher.
• USD: US retail sales continued to climb last month, buoyed by increased spending at auto dealerships (+1.3%) and on gas (+5.5%). Retail and food services rose +0.9% to +$406.75b. Ex autos was +0.8%, ex gas and it was +0.3%.
• USD: US industrial output contracted sharply last month (-1.2%), as hurricanes hit productions in the Gulf of Mexico and overall manufacturing spluttered. Capacity utilization slumped as well, falling to 78.2% from 79.2%.
• USD: US consumers in early September felt better about the economy as their expectations brightened. UoM sentiment index rose to 79.2 from 74.3.

EUROPE Week in FX

ASIA Week in FX

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