The US dollar is strong across the board today, rising more than 1% against the euro , the Australian dollar and the British pound, benefitting from a combination of a flight-to-safety and expectations for Fed tightening later in the year.
By Peter Martin
Tuesday, July 7, 2015
The Greece crisis is spurring flows into the safe-haven Japanese yen and the solidity of the US dollar, the global reserve currency of choice. There have been questions in recent years over how long the US dollar would continue to hold its reserve currency status, but with the US now looking further along the path to normalizing monetary policy than other major economies, such speculation has been swept away, especially with the euro undermined by developments in Greece and China’s stock market looking suspiciously like a bursting bubble despite desperate government attempts to prop up prices and added liquidity measures from the People’s Bank of China.
Asian shares were mixed overnight: the Japanese Nikkei gained 1.3%, but the Shanghai Composite Index slid just over 1%, despite the strong measures to support stocks that were announced over the weekend by the Chinese government.
Data released today shows both the US and Canada with a widening gap between exports and imports, but it was the US dollar that performed strongest out of the two currencies. The US trade gap widened in May to $41.9 billion, slightly better than the $42.7-billion deficit that was expected, while April was revised to be a slightly tighter -$40.7 billion than -$40.9 billion that was previously reported.
In comparison, Canada’s merchandise trade level slid to a larger-than-expected deficit of C$3.34 billion in May. This exceeded by some margin the expected deficit of C$2.5 billion, as exports fell for a fifth consecutive month, while imports rose 0.2% and the bilateral surplus with the US narrowed from C$2.34 billion in April to $2.12 in May. This worsening of the trade situation is a worrying development for the export-reliant Canadian economy, and increases the chances of the Bank of Canada being pressured into loosening monetary policy. USD/CAD gained 0.65% to 1.2734 in early trading.
The strength of the US dollar has impacted gold (which is priced in dollars) and the precious metal has fallen heavily today, despite conventional wisdom suggesting the safe-haven commodity should flourish at a time of financial uncertainty. Spot gold fell more than 1% to $1158.3 per troy ounce.
Worries over Greece cast a pall over trading on Wall Street on Monday; athough risk-sentiment is clearly being constrained by the crisis, the negative effect on US stock prices has been quite minimal, with investors appearing to be in more of a holding pattern than in a sell-off mode. This was further evidenced by a stable opening on Tuesday in New York. Shortly after the open, the Dow Jones was up 10 points or 0.06%, while the S&P 500 Index retreated 0.08% to 2067.1.
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