FX market outlook

FX market outlook

Aussie extends losses to 4-month low after weak retail sales; greenback rallies versus yen.

The aussie slid to a fresh four-month low against the greenback during today’s Asian session after disappointing Australian retail sales numbers, which unexpectedly declined by 0.1% month-on-month in March, compared to a downwardly revised 0.2% drop in February and missed estimates of a 0.3% increase.

The Australian dollar fell to as low as $0.7334. The data will not likely change expectations that the RBA will keep interest rates steady for months to come. Australia’s federal budget will be released later in the day, although this is unlikely to have a large impact on the aussie. The currency has mainly been under pressure lately due to weak commodity prices, especially iron ore, and also due to a stronger US dollar.

The US dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, extended gains from Monday to rise above 99 points in Asian session trading. The dollar advanced against the yen to its highest since mid-March to reach 113.63 yen. Expectations for a Fed rate hike in June have increased, adding support for the dollar.

Dollar-denominated assets such as gold, were weaker due to the firmer greenback and waning demand for safe haven assets. The precious metal traded just below $1230 an ounce in Asia. Aside from gold and the yen, other safe havens such as the Swiss Franc also retreated as risk sentiment picked up after Emmanuel Macron’s victory over Marine Le Pen in the French presidential elections last Sunday.

Easing concerns over European politics lifted the euro against the Swiss franc, to reach a seven-month high of 1.0918 francs. Against the yen, the euro rose to the key 124-yen level in late session trading today. It hit a one year high on Monday. Euro’s decline against the dollar towards the $1.0900 level was mainly driven by profit-taking and a broadly firmer US currency. With the French election risk out of the way, investors are now shifting their focus to the European Central Bank to see when it would scale back its quantitative easing, given the recent strength in the Eurozone economy. All eyes will be on ECB President Mario Draghi who is due to speak at the Dutch House of Representatives on Wednesday. Comments by ECB board member Yves Mersch on Monday gave a hint that Draghi may not be so dovish when he speaks tomorrow. Mersch said that the ECB is close to declaring risks to growth in the Eurozone are balanced.

Oil prices remained steady above $46 a barrel today after bouncing from five-month lows on Monday. There are hopes that the OPEC deal on output cuts will be extended to the rest of the year.