FX Daily: Gas rallies for Norway and Russia | Item

USD: Weak retail sales in August could weigh on dollar today

A broad dollar trend was notable for its absence this week. This should perhaps come as no surprise given the conflicting themes around the world and also in the United States. There is a creeping feeling that with higher vaccination rates Europe may be slightly more resilient than the United States to new waves of the pandemic in the northern hemisphere this winter. However, US growth is more evident and for the financial markets, the Fed seems well ahead of the ECB in the normalization of its policy.

In the United States today, the focus will be on August retail sales. ING’s James Knightley expects the MoM to drop 1.5% largely on the 11% drop in auto sales volume seen this month. This week, the dollar has fallen slightly on weaker US data (eg, weaker-than-expected CPI impression on Tuesday), although those intra-day losses were quickly reversed. The same could be seen today – i.e. an intra-day dollar decline of 0.3-0.5% on a weak retail sales release, but quickly reversing. Indeed, it seems unlikely that investors will want to build momentum behind further dollar trends until the September 22 FOMC event risk has passed.

In addition, we are now focusing on soaring natural gas prices in Europe. A European benchmark (TTF) now stands at € 70 / MWh, after starting the year at € 20 / MWh. As Warren Patterson explains, several factors explain this development, mainly due to supply, but also via the soaring carbon prices in the EU ETS cap-and-trade system which encouraged the switch to carbon. coal to gas. With very low gas inventory levels as the European winter approaches, the risks to natural gas prices are on the rise. This is a big problem for Europe, where gas accounts for around 25% of energy consumption.

Where this connects with FX is through the terms of trade. Norway and Russia are major natural gas exporters and yesterday saw their currencies outperform. Both currencies are backed by hawkish central banks, although the CBR is near the end of its tightening cycle, while Norway is expected to start next week. We favor maintaining the strength of both currencies.

Emphasis could also be placed on the other major exporter of natural gas, Qatar. Its 5-year sovereign CDS has shrunk recently and investors may wonder if QAR 12 million futures points should be trading closer to zero.

About Meredith Campagna

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