Commodity currencies have made something of a comeback this month buoyed by a recovery in oil prices, but further strong gains versus the U.S dollar are likely to be limited with the US interest rate cycle close to turning upwards.
The North American trading session has been extremely quiet so far as the U.S. is out on holiday and Canada isn’t scheduled to release anything, so most of the early attention is being directed toward today’s Eurogroup Meeting and comments by Finance Ministers whom are attending.
On Tuesday, we previewed today’s high-stakes Riksbank meeting, concluding, “Sweden’s 0% interest rate may actually look attractive compared to the negative interest rates in the Eurozone and Denmark. Therefore, the central bank may choose to cut interest rates slightly to -0.1% or -0.2% to prevent any further appreciation in the krona."
It’s become a bit of cliché to call every single non-farm payroll report “the most important jobs report in years,” but leaving behind the hyperbole, today’s labor market report was certainly highly anticipated.
Quantitative easing has been around some seven years in its current form, but now another monetary policy tool is gaining momentum called negative interest rates. This is likely to become a weapon of choice in the currency wars and a key driver of exchange rates.