FX Market View #29 Dollar holds in narrow range ahead of US Q3 GDP data

As we approach the tail-end of the first month in the last quarter of the year, one key macro view on the week ahead is the preliminary estimates of US Q3 GDP data. The market will look to assess how resilient the US economy is, and how it is hold up against a backdrop of global uncertainty. Supply chains around the world are still under pressure, as global shipping and transportation cannot keep up with consumer demand. If we also include elevated inflation levels driven by rising energy costs into the mix then a likely softer GDP report will play against the Dollar. Other major macro news will centre on the meetings of three of the G7 central banks. The BOJ, ECB and Bank of Canada will provide more information on the tapering programs.
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Even after rising US yields and record high stock indices, the Dollar has failed to gain any sustainable ground against its major counterparts. As a matter of fact, the greenback has lost ground against all major currencies across the board including the Yen. The largest moves against the Dollar still come from the Australian and New Zealand Dollar, as well as the Scandinavian currencies. Increases in interest rates from these named economies as still the likely contributor towards their strength against the Dollar. The Euro may not have broken through any short-term highs, but is recent trend is still one of strength, testing the Dollar for further weakness. In anticipation of a weaker Q3 US GDP report, the Dollar losses could be a reflection of position adjustments and not an actual sell-off.
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The week began fairly quiet, without any significant market moves. If we consider the importance of the pending macro news that will be released later this week, the first day was unassuming. Global equity markets traded lower, paring the gains from the end of last week. US yields edged up slightly as well as European core yields. Again it is the Norwegian Kroner, Australian and New Zealand Dollars leading the way higher. The Swiss Franc and Japanese Yen traded lower as expected, with the Dollar holding in narrow ranges. After a fifth week of consecutive gains by the Canadian Dollar, the greenback has finally slowed its momentum. A similar picture evolved against Sterling with the Dollar halting its gains, as the pair traded to the lower levels from the last week.