European Currencies vs. Commodity Currencies

European currencies underperformed commodity currencies today as stronger data out of Asia sent the Australian and New Zealand dollars sharply higher. More than 60K jobs were created in the month of March with full time work rising by 74.5K, the largest increase in 2 decades. Part time work fell but the loss was small relative to the increase in full time work. These improvements in the labor market encouraged more Australians to return to the workforce as evidenced by the rise in the participation rate. Economic conditions in New Zealand also seem to be improving with manufacturing activity accelerating at its fastest pace in 14 months. Most importantly, China’s trade balance beat expectations, with the surplus rebounding back to $23.93B from a deficit of -$9.15B, exceeding the market’s $12.5B forecast. Both exports and imports increased with the former rising by 22.3%, which also happens to be the largest single month increase in 2 years. Data from the region was very good, allowing the Australian and New Zealand dollars to outperform its peers easily. The Canadian dollar on the other hand retreated as USD/CAD found support above 1.32. The currency pair’s relentless decline stopped right above the 200-day SMA. Although yesterday’s growth revisions and comments from Bank of Canada officials support a further rise in the currency, the loonie enjoyed strong gains in recent days and the pullback in oil prices helped USD/CAD find support.

The euro and British pound on the other hand came was under selling pressure throughout the NY session. Part of the move had to do with the earlier recovery in the greenback but lower UK and German yields along with ongoing concerns about next weekend’s French election also put pressure on the euro. There were no surprises in German data as consumer price growth was confirmed at 0.2% for the month of March. No U.K. economic reports were released today but GBP/USD is struggling around 1.25. We continue to look for the euro to underperform the commodity currencies ahead of next weekend’s French elections. In the meantime, many European markets are closed for Good Friday and Easter Monday so while there are some important U.S. economic reports due on Friday, lower liquidity could affect volatility.

The U.S. dollar took its cue from yields, weaving in and out of negative territory. Unfortunately geopolitical risks remain front and center with the U.S. dropping the largest non-nuclear bomb on ISIS in Afghanistan. President Trump has been flexing his muscles, which makes investors nervous. The situation in North Korea is still uncertain but after Syria and ISIS, North Korea could be Trump’s next target. The dollar unwound nearly all of its earlier gains as yields turned lower on the back of the news. While this morning’s U.S. economic reports were mixed, the dollar’s initial reaction tells us that investors were pleased to see the continued drop in jobless claims and rise in consumer confidence. Jobless claims held near recent lows while the University of Michigan consumer sentiment index rose to its strongest level in 3 months. This bodes well for tomorrow’s retail sales report as the uptick in wages and increase in confidence should have encouraged more spending. So while producer prices declined and consumer prices are likely to remain subdued, an increase in spending could help USD/JPY stabilize above 109 before the Easter holidays.