FX market outlook

FX market outlook

Posted on Monday, May 15 2017 at 8:16 am GMT+0000
Dollar under pressure; oil jumps on hopes of extending OPEC deal

The dollar came under pressure against most major counterparts but rose against the yen. Oil prices jumped higher on expectations that oil production cuts will be extended to next year. The yen was only briefly boosted by geopolitical concerns after news of another North Korean missile test over the weekend.

On the economic data front, China released industrial production and investment figures for April, which were disappointing. But markets shrugged off the weak numbers to focus on China’s plan to boost infrastructure spending and begin the One Belt One Road initiative that is pro-trade.

Chinese industrial output missed forecasts in April to rise 6.5% year-on-year versus 7.1% expected and was down from March’s 7.6%. Fixed-asset investment grew 8.9% year-on-year in April, down from an increase of 9.2% in March and falling short of expectations for a 9.1% gain.

China is a major trading partner for Australia but the aussie was only briefly hurt by the weak data and it recovered relatively fast. During the Asian session, the aussie touched a low of $0.7384 against the greenback but soon jumped above the key $0.7400 level, helped by a softer US dollar.

The US dollar was mostly consolidating against the yen during the Asian session, trading around 113.35 yen before gaining in early European trading hours. Weak US data on retail sales and inflation out on Friday and lower US Treasury yields generally weighed on the greenback.

The euro held onto gains made against the dollar on Friday to trade around $1.0935. There was little reaction to news that German Chancellor Angela Merkel’s CDU party won regional elections over the weekend, although this would calm any political concerns and help support the single currency. Key risk events for the euro will be Eurozone first quarter GDP data and April inflation data due later in the week.

The market’s focus was on oil today, which jumped on news that energy ministries from Saudi Arabia and Russia agree that an OPEC deal should be extended to March 2018. WTI oil rose to touch the key $49 a barrel. The Canadian dollar gained on the news, with USD / CAD dropping to $1.3625, the lowest level since April 28.

Gold prices extended the previous two days of gains to reach a high of $1232.57 an ounce.