FX market outlook

FX market outlook

Posted on Wednesday, April 12 2017 at 8:05 am GMT+0000

Gold and yen at five-month highs on geopolitical risk.

Geopolitical concerns continued to be the dominant theme in the markets today, yen jumped to five-month high and gold traded at the highest level this year. Risk aversion also pushed investors into the safety of US Treasuries.

News related to tensions over North Korea and Syria mostly took the market’s attention and Chinese inflation data today were shrugged off as the figure was around expectations. CPI increased 0.9% year-on-year in March, which slightly undershot forecasts for a 1.0% rise, but was up from February’s 0.8% gain. Producer prices jumped by a 7.6% year-on-year in March, in line with estimates.

In other data, Australia’s Westpac consumer sentiment slipped by 0.7% in March versus a 1.1% increase in February.

Meanwhile, Japan’s core machinery orders increased by 1.5% in February after declining by 3.2% in January.

Lower US yields had a negative effect on the greenback which extended losses against the yen to reach a low of 109.34 in Asian trading. The dollar index, which gauges the US currency against a basket of six major counterparts, saw choppy trading during the session but remained above the key 100 level.

The yen benefitted from safe haven demand and outperformed against the euro, pressuring EUR / JPY to its lowest since mid-November at 115.92 yen.

The euro fared better against the broadly weaker dollar and managed to hold onto gains made yesterday and remained above the key $1.0600 level in Asian trading. Upcoming French election risk could limit gains for the single currency.

The Australian dollar dipped below the key $0.75 level against the greenback, wallowing near three-month lows.

Brent crude extended gains for a fifth consecutive day to reach $56.53 a barrel, its highest since March 7, while WTI oil reached $53.65 a barrel, also a five-week high.

Gold hit a new five-month high of $1279.67 an ounce as the precious metal benefitted from safe haven flows.

Looking ahead to the rest of the day, focus will be on UK jobs data. The pound was steady against the dollar in Asia around $1.2490, consolidating gains made on Tuesday following a jump after UK inflation data.