Cheap Oil Drives Usd
The US dollar’s gains have continued for a second straight day, reversing the declines seen after the release of the Fed’s minutes on Wednesday.
By Peter Martin
Saturday, October 11, 2014
By mid-afternoon in New York, EUR/USD was down 0.56% at 1.2620 and GBP/USD was off 0.40% at 1.6054.
The strength of the dollar has served to push import prices lower according to data released today by the Labor Department. Prices have dropped so much in recent months in fact, that import prices are now looking deflationary to a quite significant degree. Import prices have fallen now for three consecutive months, declining 0.5% in September after a 0.4% fall in August. Year-on-year, that makes import prices down a steep 0.9%.
A large part of that can be laid at the feet of cheaper prices for imported petroleum, but doves at the Fed are likely to be unsettled by the data contained within this report: the minutes from the last FOMC meeting revealed that a couple of members ‘noted the possibility that longer-term inflation expectations might be slightly lower than the Committee's 2% objective or that domestic inflation might be held down by persistent disinflation among US trading partners and further appreciation of the dollar.’
Export prices also fell in September, down 0.2% on the month and also from a year ago. More price data is available next week with the Producer Price Index, but based on today’s data, expectations will be on the soft side and further declines in the price of oil this month will drag on the inflationary outlook beyond.
Like other major currencies, the Canadian dollar has lost ground against its US counterpart today, but it has strengthened against the majority of its most commonly-traded peers, following a report showing Canadian joblessness at a six-year low. The Canadian Labor Force Survey bounced back in September after a surprise drop in August, rebounding to the tune of 74,100 extra people in employment, the fastest rate of increase in 16 months, while the unemployment rate improved to 6.8%, its lowest level since December 2008.
Most of the advances in employment were full-time positions, which should provide a much-needed boost to the Canadian economy, which continues to underperform in the key area of exports. Employment for the third quarter has increased by 104.800, a massive shift from the previous quarter when the labor market contracted by 12,500. Though the Bank of Canada is unlikely to significantly alter its outlook, today’s report does suggest conditions are better than previously thought.
The Bank of Canada today published its quarterly business outlook survey, which garners views from the business community on such issues as demand and capacity pressures – which feed into inflationary pressure – and expectations for economic activity. The report shows 14% of those interviewed indicated faster growth in annual sales, compared to just 5% in the two previous quarters, and 35% of respondents expecting the pace of growth to continue to increase, compared to 24% back in July. Inflationary pressures are viewed as being muted though. By mid-afternoon in New York, USD/CAD was up 0.25% at 112.13.
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