FX market outlook

FX market outlook

Posted on Thursday, May 25 2017 at 8:37 am GMT+0000

Dollar lags after Fed minutes; loonie reaches new month high; oil gains ahead of OPEC.

The US dollar was heavy after the FOMC minutes, while the Canadian dollar outperformed across the board on an upbeat Bank of Canada. Oil prices extend gains ahead of the OPEC meeting in Vienna today.

The minutes from the Fed’s May meeting showed some caution, despite most FOMC members indicating that another interest rate hike would be appropriate soon. The probability of a rate hike at the June FOMC meeting remains quite high – above 80% – but the markets were positioned for a more hawkish tilt in the statement and consequently sold off the dollar.

US Treasury yields fell after the FOMC minutes and this weighed on the greenback, which slipped to 111.47 yen late on Wednesday before steadying during today’s Asian session to reach 111.70 yen. The dollar index fell back below 97 points to trade near its lowest levels since November.

The diverging commentary from the Fed and the BOC helped the Canadian dollar extend gains versus the US dollar to reach its strongest level in a month. USD / CAD dropped further to as low as $1.3386. The loonie was given an initial boost yesterday after the BOC announced its decision to keep interest rates unchanged and sounded upbeat on first-quarter economic data.

With the FOMC minutes out of the way, the focus shifts to the next key event – the OPEC meeting – which begins today in Vienna. Oil prices have been rising going into the meeting, on expectations that a current agreement to cut output will be extended by another nine months to March 2018. WTI oil rose to a high of $51.90 a barrel in Asia today, hitting a fresh five-week high.

In other currencies, sterling remained below the key $1.3000 level as focus turns to the UK GDP data due later today. The euro resumed its advance versus the broadly weaker dollar and rose to $1.1244.

Aside from UK GDP data and the OPEC meeting, markets will also look to US jobless claims data scheduled for release later in the day.