Dollar Mixed Ahead of the Holiday

Dollar (8)

  • The dollar is narrowly mixed as markets thin ahead of the holiday
  • UK Q3 GDP was revised modestly
  • During the North American session, the US reports November new home sales and final December University of Michigan consumer confidence
  • Singapore reported firm November CPI and IP; USD/BRL traded below 3.30 for the first time since November 10
  • Mexico reports November trade

The dollar is mixed against the majors in very narrow ranges. The euro and the yen are outperforming, while the Aussie and sterling are underperforming. EM currencies are mixed. PHP and SGD are outperforming, while KRW and TWD are underperforming. MSCI Asia Pacific was down 0.2%, with Japan markets closed for holiday. MSCI EM is down 0.3%, with Chinese markets falling 0.8%. Euro Stoxx 600 is flat near midday, while S&P futures are pointing to a lower open. The 10-year UST yield is down 1 bp at 2.54%. Commodity prices are mixed, with oil down 0.8%, copper up 0.2%, and gold up 0.3%.

The dollar is narrowly mixed as markets thin out ahead of the holiday. The Swedish krona was the big winner in the majors this week, up 1.3% vs. both the dollar and the euro. The yen was second best, up 0.5% against the dollar. Sterling was the worst performing major, down 2% vs. both the dollar and the euro. The dollar bloc also suffered this week.

UK Q3 GDP was revised modestly. While the q/q rate was revised up to 0.6% from 0.5% previously, the y/y rate fell to 2.2% from 2.3% previously. The Q3 current account deficit was smaller than expected at -GBP25.5 bln. Sterling continues to edge lower, with cable at its lowest level since November 2. Cable has fallen for the fifth straight day, and in 12 of the past 14 days.

During the North American session, the US reports November new home sales and final December University of Michigan consumer confidence. Canada reports October GDP, which is expected to rise 1.8% y/y vs. 1.9% in September.

Singapore reported firm November CPI and IP. The former was flat y/y, as expected, while the latter jumped 11.9% y/y vs. 1.6% expected. This was the first non-negative inflation reading since October 2014. Core inflation rose 1.3% y/y, the highest since February 2015. Low base effects along with high oil prices and a weak SGD should push inflation significantly higher in 2017. If so, we think the MAS is likely to keep policy steady at its next policy meeting in April.

USD/BRL traded below 3.30 for the first time since November 10. The real’s resilience is notable, especially when compared to the performance of MXN recently. The 3.2945 area is key. Since it’s the 62% retracement of the big post-election spike in USD/BRL, a break targets the November 8 low near 3.1625.

Mexico reports November trade. Even as petroleum exports have recovered to rise y/y in the past two months, non-petroleum exports have weakened. In particular, manufacturing exports contracted -6.1% y/y in October. Recent weakness in intermediate imports (-5.1% y/y in October) does not bode well for manufacturing exports ahead, even though the weak peso should help make exports in general more competitive.