Forex Today: Eyes on US housing data and Canada inflation report
Here is what you need to know on Tuesday, August 19:
The trading action in financial markets remains subdued early Tuesday following a quiet beginning to the week. Later in the day, Housing Starts and Building Permits data for July will be featured in the US economic calendar. Additionally, investors will pay close attention to Consumer Price Index (CPI) figures from Canada.
The US Dollar (USD) Index, which tracks the USD's performance against a basket of six major currencies, closed in positive territory on Monday. Meanwhile, Wall Street's main indexes ended the day virtually unchanged as investors assessed the headlines coming out of the meeting between United States (US) President Donald Trump and Ukrainian President Volodymyr Zelenskyy.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.31% | 0.27% | 0.32% | -0.05% | 0.38% | 0.08% | 0.06% | |
| EUR | -0.31% | -0.04% | 0.00% | -0.36% | 0.09% | -0.26% | -0.25% | |
| GBP | -0.27% | 0.04% | -0.06% | -0.31% | 0.13% | -0.21% | -0.25% | |
| JPY | -0.32% | 0.00% | 0.06% | -0.35% | 0.08% | -0.21% | -0.26% | |
| CAD | 0.05% | 0.36% | 0.31% | 0.35% | 0.41% | 0.13% | 0.07% | |
| AUD | -0.38% | -0.09% | -0.13% | -0.08% | -0.41% | -0.34% | -0.38% | |
| NZD | -0.08% | 0.26% | 0.21% | 0.21% | -0.13% | 0.34% | -0.06% | |
| CHF | -0.06% | 0.25% | 0.25% | 0.26% | -0.07% | 0.38% | 0.06% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Zelenskyy said that they have discussed security guarantees for Ukraine with Trump and European leaders, adding that they are ready to meet with Russian President Vladimir Putin. Early Tuesday, US Secretary of State Marco Rubio confirmed that they will work with European allies and non-European countries on providing security guarantees for Ukraine. In the European morning on Tuesday, US stock index futures lose about 0.2%, pointing to a cautious market mood, while the USD Index holds steady at around 98.00.
The data from Australia showed that Westpac Consumer Confidence improved to 5.7% in August from 0.6% in July. AUD/USD struggles to benefit from the upbeat data and trades slightly below 0.6500 in the European morning on Tuesday.
The Producer Price Index in New Zealand rose by 0.6% on a quarterly basis in the second quarter. This print followed the 2.9% increase recorded in the first quarter and came in below the market expectation of 1.4%. In the early trading hours of the Asian session on Wednesday, the Reserve Bank of New Zealand will announce monetary policy decisions. NZD/USD holds steady above 0.5900 ahead of this key event.
After posting small losses on Monday, USD/CAD moves sideways near 1.3800 in the European morning on Tuesday. Annual CPI inflation in Canada is forecast to soften to 1.7% in July from 1.9% in June.
EUR/USD lost about 0.4% on Monday and continued to edge lower in the early Asian session on Tuesday. After dropping to 1.1640, EUR/USD staged a rebound and was last seen trading near 1.1680.
Following a bearish start to the week, GBP/USD touched a weekly low below 1.3500 early Tuesday. The pair corrects higher in the European morning and trades at around 1.3520.
USD/JPY finds it difficult to build on Monday's gains and trades marginally lower on the day below 147.70. In the early trading hours of the Asian session on Wednesday, Merchandise Trade Balance data for July will be featured in the Japanese economic calendar.
Gold recovered slightly on Monday but lost its traction to end the day flat. XAU/USD moves sideways below $3,350 in the European morning on Tuesday.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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