Dollar Gets Its Groove Back

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Market Drivers for January 15, 2014
AUD/USD crushed as weaker Chinese loan data AUD/NZD selling weigh on pair
Dollar dominates across the board
Nikkei 2.50% Europe .52%
Oil $92/bbl
Gold $1237/oz.

Europe and Asia:
CNY New loans 483B vs. 589B
JPY Machine Tools 28% vs. 15%
CHF Retail Sales 4.2% vs. 1.7%
EUR Trade Balance

North America:
USD Empire Manufacturing 8:30 EST

Dollar was well bid in Asian and early European trade today gaining ground across the board as EUR/USD fell to a low of 1.3611, USD/JPY hit a session high of 104.45 and Aussie crumbled through the 8900 barrier.

The weakness in the Aussie was especially acute as the pair sold off from the start of Asian session trade driven lower by news that China’s new loan demand declined sharply at the end of last year. Chinese new loans expanded only to 483B versus 589B eyed and 625B the month prior. This was the weakest expansion of credit in more than a year suggesting that economic activity in China may decelerating at a faster pace than expected.

Currency traders quickly reacted to the news pushing Aussie below 8900 level all the way to 8869. Just two days ago the pair was inching towards the 9100 figure, but the short covering rally has clearly run out of momentum and the pair is now once again within reach of testing the yearly lows of 8850. Tonight’s AU employment report stands as the marquee event of the week. If the data misses its mark it could trigger an avalanche of selling that could send Aussie to fresh yearly lows as financial markets will begin to price in the possibility of further rate cuts from the RBA.

On the other hand if AU data proves to better than forecast it could start a new short covering rally. With sentiment against the Aussie so heavily skewed to the sell side any positive surprise could quickly push the unit back towards the 9000 level.

Meanwhile in Europe the Trade Balance data was broadly in line printing just a touch below expectations at 16B versus 16.7B. The news had no impact on trade but EUR/USD was lower on general dollar strength. Yesterday’s US Retail Sales data provided a sigh of relief for dollar bulls as it showed that final demand remained relatively resilient.

The news has had some follow through effect this morning in early London trade and as North America come on line the currency markets will focus on the Empire Manufacturing data for the next directional clues to the day. The Empire report is a minor one but it often forecasts the demand in the broader indices and as such could determine if the dollar rally extends or runs out of steam as the day proceeds.

Boris Schlossberg
Managing Director

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