Daily FX market outlook

Daily FX market outlook

Posted on Tuesday, October 4 2016 at 8:11 am GMT+0000

Dollar rebounds on strong ISM; pound makes new low while RBA holds rates.

The US dollar was up during Tuesday’s Asian session as it managed to push euro / dollar below 1.12 and dollar / yen rose above 102 on follow-through buying after the previous day’s strong ISM manufacturing PMI for the United States.  ISM manufacturing PMI rose to 51.5 from the previous month’s surprising 49.4 reading, which had left the index in contraction territory.  The report contained a particularly strong new orders component, while the employment and prices sub-components were also better-than-expected.

The dollar staged a significant rebound and the euro was last trading at 1.1183 against the greenback and dollar / yen was at 102.25 (the highest since September 21).  Still, there were questions about the dollar rally’s durability with the Fed expected to hold rates in November and to possibly raise rates only in December.  US elections also loom ahead for the currency.

The pound was still under pressure as pound / dollar made a new post-Brexit low.  The pound made a fresh 31-year low of 1.2786 against the dollar.  It fared slightly better versus the euro, as it kept some distance from the previous day’s 3-year highs.  Euro / pound was at 0.8725.  Fresh statements by the UK Prime Minister to allay concerns about a ‘hard Brexit’ failed to lift the pound.

In Australia the Reserve Bank kept interest rates unchanged as expected by economists.  The RBA, under its new Governor, did not appear eager to cut rates again soon, while data from building approvals came in much better-than-expected.  The aussie – perhaps pressured by the stronger US dollar too – failed to capitalize on the RBA and the strong economic data and was last at 0.7660 against the greenback.

Looking ahead, there was little in the way of major data releases for the remainder of the day.  UK construction PMI for September will be followed by Eurozone producer prices for August, while the bi-weekly dairy price auction could move the kiwi.  During the US session, American Petroleum Institute inventory data could move oil, with the UK Brent crude trading above the $50 a barrel level.