Dollar Pares Quarterly Loss in Last-Gasp Rebound; Loonie Gains

(Bloomberg) -- The dollar saw modest gains amid choppy month-end trading as traders rebalanced portfolios, paring its second straight quarterly loss, which matches the longest losing streak in three years.

The greenback was headed for a quarterly loss of 3.2 percent and a monthly decline of 1.2 percent. Flows were modest as the dollar was jostled by the month-end rebalancing that defied expectations from several banks for further modest dollar selling ahead of the European close. The greenback gained some support from data that showed that May personal incomes rose more than expected and that the PCE deflator, the Federal Reserve’s preferred measure of inflation, was up 1.4 percent from the year-ago month, just shy of 1.5 percent estimates.

Dollar Pares Quarterly Loss in Last-Gasp Rebound; Loonie Gains
  • The Canadian dollar rose to a fresh nine-month high vs its U.S. counterpart at 1.2947. Investors continued to recalibrate positions after BOC officials recently turned more hawkish, leading OIS traders to price a more than 80% chance of a rate hike at the bank’s July 12 meeting. Data that showed the Canadian economy expanded at a 3.3% annual pace in April did nothing to curb the rate hike expectations, though an unexpected drop in industrial product prices underscored subdued pricing pressure
  • EUR/USD traded around 1.1420 after relinquishing early gains as leveraged accounts and some hedge funds booked profits on EUR longs set earlier in the week, according to traders familiar with the transactions who asked not to be named because they are not authorized to speak publicly. The EUR gained this week after remarks from ECB’s Draghi were deemed hawkish, igniting a rally that carried the shared currency to its highest level since before the Brexit vote last year
    • Offers to sell the EUR are positioned above 1.1450, though a break above that level may trigger a fresh round of buying if stop-loss buy orders are tripped.
    • Appearances by Bundesbank’s Weidmann and ECB’s Mersch this weekend might offer the opportunity for governing council members to push back on the hawkish interpretation of Draghi’s comments
  • GBP traded around 1.3020 after earlier rising to its highest level since May 23 and then dropping to a fresh low at 1.2946. A weekly close above 1.3000 may keep the uptrend intact and could lead to further model-driven demand when trading resumes next quarter, a trader in London said
  • USD/JPY rose to a fresh session high of 112.60, recouping slight losses from overnight that saw the dollar briefly dip under its 100-DMA as stop-loss sell orders were tripped. JPY gained as Asian equities initially followed other global stocks lower, fueling haven demand. A Friday bounce in U.S. stocks alleviated some of that pressure
    • A Tokyo assembly election Sunday will be watched as a barometer of support for Prime Minister Abe’s government
  • Trading may get off to a slow start next week with Canadian markets closed Monday for Victoria Day and U.S. markets closed Tuesday for Independence Day. Traders are likely to keep powder dry ahead of the key U.S. employment report due at the end of the week, the median estimate in a Bloomberg survey calls for a gain of 175k jobs
    • RBA also meets next week; AUD 1-week vols remain elevated ahead of the meeting