The Dollar Fell Before FOMC Meeting Minutes Publication

August 21, 2013

The dollar dropped on Tuesday against almost all major currencies (except commodity ones) before the publication of FOMC Meeting Minutes on Wednesday. FOMC Meeting Minutes will clarify the placement of forces in the Federal Reserve about reducing the QE3 incentive program and whether it should be expected in September already. If the FOMC Meeting Minutes don’t say anything about QE tapering off and the state of economy is not considered good enough for this, it can have a negative impact on the dollar. 

Extra pressure on the dollar was put by the decrease of the US National Activity Index. Chicago Fed National Activity Index (CFNAI) grew in July less than expected (-0.10) to -0.15 from -0.23 in June. Prior month reading was revised for the worse from -0.13 to -0.23. The index has been below zero for five months in a row since March – which indicates National Activity Index growth being below the trend.

 

 

 

The euro overcame the level of 1.34 Vs the dollar and closed higher than it for the first time since the middle of February. Construction Output in the euro-zone in June grew by 0.7% compared with the prior month, May data were revised from -0.3% to +0.5%. The reading has been growing for three month in a row making a significant contribution to overcoming the recession, which was shown by the euro-zone preliminary GDP released last week (GDP growth by +0.3% q/q after 6-quarter decrease). Belgium NBB Consumer Confidence Index had been growing for the fifth month in a row in August to its high for the last 15 months (to -12 from -16 in July).  

The pound was traded upwards and updated the August maximum. According to the Council of Mortgage Lenders (CML), UK mortgage lending reached its high in July for almost 5 years amid incentive programs of the government: 16.6 bln pounds against 14.8 bln prior month. The yen has grown amid Japanese stock market decrease which according to Nikkei 225 lost 2.6% on Tuesday.  

The Canadian dollar dropped Vs US dollar to its low for almost two weeks on the back of Wholesale Sales report in Canada which showed the highest decrease rates for more than 4 years. According to the Canadian Office for National Statistics, Wholesale Sales dropped by 2.8% in June against the expected decrease by 0.5%.     

The Australian dollar fell after the publication of Australian Reserve Bank Meeting Minutes on August 6, which resulted in the decrease of the key interest rate to the record low 2.5%. The RBA declared in its meeting minutes that it didn’t exclude the possibility of further interest rate decrease in future although it hadn’t plans of mandatory rates decrease and it would continue to monitor the economic indicators. According to the minutes, AUD maintains overvalued in historical standards and it probably will continue falling.    

New Zealand dollar weakened to a week low against the US dollar after the RBNZ Governor Graeme Wheeler speech. He called NZD rate overvalued, not just high, speaking of high credit risks. At the last meeting RBNZ used a mild formulation, which probably was a mistake. Also Wheeler announced on Tuesday that mortgage lending restrictions to borrowers with small deposits will be introduced since October 1, which put an extra pressure on the NZD.

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