September 4 2018

Sept. 4, 2018 (Western Union Business Solutions) – The U.S. dollar dashed out of the gates to a new month as a familiar them continued to unnerve markets: fears of a global trade war. The buck posted across the board gains with the biggest coming against export-reliant emerging markets. Mexico’s peso hit two-month lows while South Africa’s rand flirted with two-year lows. European currencies struggled with the euro and sterling hitting more than one-week lows. Canada’s dollar slipped to more than two-week lows despite a 2% rally in oil to above $71. This is the week that the U.S. could slap another round of tariffs of $200 billion on China. It’s also the week that the U.S. economy will release important data that could keep the Fed on a higher rate path over the rest of the year. America will release manufacturing data today, trade tomorrow and the granddaddy of them all: nonfarm payrolls on Friday.




The Canadian dollar returned from a long holiday weekend at its lowest in 2 ½ weeks. The coming week is chock-full of risk events with the Bank of Canada rendering an interest rate decision Wednesday, the same day that the U.S. and Canada are expected to return to the Nafta negotiating table. Data on trade and employment are also due this week. Of fundamental importance will be the BOC which is forecast to leave interest rates parked at 1.50% given trade uncertainties and news last week that Canada’s economy grew at a slightly slower than expected pace last quarter. No rate hike but a firm signal of a potential rate increase to 1.75% as soon as next month would tend to support Canada’s currency.




Sterling got off to a soggy start to the month as it backpedaled to 1 ½ week lows against the greenback. The ever-present uncertainties related to Brexit gnawed at the pound while it didn’t help that a pair of U.K. PMI surveys this week on manufacturing and construction underwhelmed, potentially heralding a similar outcome for the more important services sector index Wednesday. Nevertheless, forecasts call for the economy-driving services sector to grow at a slightly quicker rate of nearly 54 for August.




The U.S. dollar got off to a quick start to the month with trade uncertainties running high, along with expectations for a solid showing from the U.S. economy this week. The ISM index of manufacturing growth comes out today, followed by the politically-sensitive trade deficit Wednesday and nonfarm payrolls Friday. Forecasts call for quicker hiring in August (190K vs July’s 157K), lower unemployment (3.8% vs 3.9%) and steady wage growth of 2.7%. Outcomes near or better than expected would help to cement a Fed rate hike to 2.25% from 2% on Sept. 26 and keep the door ajar to another increase by year-end, a scenario that could keep the greenback well-supported.




The euro hit 1 ½ week lows as risk-averse traders sought the U.S. dollar’s relative safety. Once again, markets are unsettled by the prospect of the U.S. ramping up tariffs on China whose economy has shown growing signs of weakness. Meanwhile, a report Monday on German manufacturing fared weaker than expected, an outcome that reinforced expectations for the ECB next week to leave area borrowing rates at rock bottom levels.




The peso crashed to two-month lows as risk-off markets, coupled with expectations of higher U.S. interest rates, took a toll on a range of emerging markets. U.S.-China trade tensions are in the spotlight with markets positioning for the former to slap more tariffs on the latter as soon as this week. Meanwhile, China’s economy has shown mounting signs of weakness which only adds to dollar-positive global uncertainties.