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The U.S. dollar weakened against a basket of major currencies in a shortened post-holiday trade on Friday as traders took profit after a strong rally that sent the greenback to nearly 14-year highs. The U.S. market was closed on Thursday for the Thanksgiving holiday and Friday was a half-day session.
The dollar index slid by 0.28% to 101.48 late Friday after having risen around 6% in the last two months due in part to expectations that increased fiscal spending and tax cuts under the Trump administration will spur economic growth and inflation. Furthermore, the fact that a rate hike by the Federal Reserve in December is a near certainty has also boost the dollar as higher interest rates make the currency more attractive to yield seeking investors.
Past week’s U.S. economic reports all contributed to supporting the case of a rate hike next month. Existing home sales, durable goods, the University of Michigan consumer sentiment index and the Richmond Fed index all exceeded economists’ forecast, indicating that the U.S. economy is improving. Next week’s data including consumer confidence, the ISM manufacturing index and nonfarm payrolls are highly expected to help the dollar sustain its bullish run.
The Euro pulled back on Friday after hitting the lowest level since early December 02nd, 2015 at $1.05171. In the week ahead, the focus for the single currency will be on German consumer prices on Tuesday, Eurozone Flash CPI on Wednesday and Manufacturing PMI on Thursday. Before those economic reports, European Central Bank President Mario Draghi is due to testify about the ECB’s outlook on economic and monetary developments and the consequences of Brexit to the Economic Committee in the European Parliament on Monday.
The Canadian dollar is anticipated to fluctuate widely next week as markets will be paying close attention to the outcome of the 171st OPEC meeting starting on November 30th. If OPEC failed to reach an output-cut agreement, oil prices will crash, sending CAD sharply lower. The cartel’s decision may overshadow Canada’s Q3 GDP report due on the same day. However, next Friday’s employment numbers should return as a key driver for the Loonie.
Sterling turned higher against the dollar last week but still remained in a consolidation. U.K. Chancellor Hammond’s first statement on the Budget last Wednesday showed that growth forecasts for the next 2 years were lowered. However, the Chancellor announced a new National Productivity Investment Fund of 23 billion pounds, promising more borrowing and investment in innovation and infrastructure. These new spending plans helped send sterling higher versus most of its peers. U.K. PMI manufacturing and construction numbers are scheduled for release next week.
There are no major New Zealand economic reports on the calendar in the week ahead except for the Financial Stability Report. Australia has retail sales and manufacturing PMI numbers scheduled, but the Aussie’s movement is expected to be driven by Chinese PMIs and commodity prices.