US Dollar Slides Despite Manufacturing Gains

Analisi Giornaliera - 02/11/2016

Stocks Crumble and the Dollar Slides While Precious Metals Gain on Election Uncertainty

As the FOMC enters the second half of its two-day meeting, the US dollar had its worst sessions in six weeks as ongoing election polling showed that the race between candidates Donald Trump and Hillary Clinton continues to narrow. Even with the uptick in manufacturing, equities fell throughout the session while haven assets like precious metals were bid.

Manufacturing Uptick Overshadowed by the Election

Election fever has taken over market sentiment as the days tick down until the American vote next week. However, while financial markets have been absorbed by the political developments, economic conditions continue to show improvement, with the manufacturing sector expanding at its fastest pace in over a year. According to the official US Manufacturing Purchasing Managers Index released on Tuesday, the PMI rose to the highest since October of 2015. Adding to the optimism was the ISM PMI notching its best performance since July, with both figures firmly in expansionary territory. Although positive on a headline basis, stocks and the US dollar were hurt by polls showing Republican candidate Donald Trump pulling into the lead. The result was a steep decline in the US dollar which sent silver storming to the upside, marking the biggest move in weeks.

Bank of Canada’s Poloz Preaches Fiscal Policy

Following a monthly gross domestic product figure for August that met expectations of 0.20% growth, Bank of Canada Governor Stephen Poloz spoke on the state of the economy. The main focus of his comments related to the risks posed by growing household debt and the housing market. He maintained that monetary policy, specifically interest rates, were a more forceful tool, and should only be looked upon as more of a last resort strategy. In the meantime, he continued to support the government’s efforts to contain the housing bubble. While he emphasized that the Central Bank does monitor these issues, the government is better equipped to deal with the problems than the Bank of Canada. Furthermore, he reaffirmed the commitment to hit the 2.00% inflation target set in coordination with the government. Although USDCAD closed the session lower, the pair is on the rebound during early European trading.

Swiss Remain Committed to Negative Rates

In remarks delivered on Tuesday, Swiss National Bank Chairman Thomas Jordan reiterated the Central Bank’s promise to uphold its two major pillars designed to keep the Franc competitive. The two pillars he was referring to were negative interest rates and periodic intervention in foreign exchange markets to prevent the Franc from appreciating versus peers. The improving economic conditions in Switzerland are evidence that the policies are working despite some concerns that the long-term impact of negative interest rates can be particularly detrimental. While stressing the difficulty of current conditions, Jordan confirmed that current policies will remain appropriate until inflation rises back into positive territory and the stress on the exchange rates is alleviated. In the meantime, the Franc reached its highest point in months versus the Euro as the rush into haven assets accelerates.

New Zealand Unemployment Falls to Lowest Since 2008

In another sign of ongoing improvement in the New Zealand economy, the latest data pertaining to employment showed additional gains. The unemployment rate fell to 4.90% during the third quarter, reaching levels last seen in the fourth quarter of 2008. Lower interest rates and improving trade have helped the economy recover from a rather tumultuous period in global trade. Helping the outlook even further was the advance in the Global Dairy Trade Index. The index, which tracks prices for dairy products, rose by 11.40% versus the 1.40% gain reported in October. As one of New Zealand’s biggest exports, the recovery in dairy prices has improved the prospects for the economy as a whole, adding to higher momentum in NZDUSD. The pair is currently trading at the highest levels since October 20^th, trending towards resistance at 0.7252.