FX market outlook

FX market outlook

Posted on Tuesday, June 6 2017 at 8:00 am GMT+0000

Dollar extends decline; aussie rallies after RBA; oil under pressure.

The dollar was broadly weaker and the yen gained on safe haven demand. The aussie rallied after the RBA meeting. Oil remained under pressure.

The Reserve Bank of Australia announced its decision to hold its benchmark interest rate steady at 1.5% and said that its unchanged policy was consistent with sustainable growth and hitting its inflation target. The markets took comfort from the RBA statement and this helped the aussie erase earlier losses to reach a session high of $0.7495. Prior to the RBA announcement the currency had fallen to a session low of $0.7456 after a big miss in Australia’s current account balance.

The euro and sterling rose ahead of the ECB meeting and the UK election. Both key events will take place on Thursday.

The euro edged up against the dollar to reach $1.1276, close to a six-month high reached yesterday.

The pound has been quite resilient despite uncertainty regarding the general elections in the UK this week. Recent polls have been mixed. Some polls indicated a narrowing lead for the Conservatives over the Labour Party while British bookmaker William Hill showed increased odds for a majority win by Prime Minister Theresa May. This news combined with a broadly weaker dollar helped cable rise to a session high of $1.2949.

Data out of Japan today showed nominal wages rose last month. Average cash earnings rose 0.5% year-on-year in May versus 0.3% expected.

The dollar / yen pair extended losses after the Japanese data to fall below the key 110-yen level. The greenback was already weighed down by disappointing US data out yesterday on ISM non-manufacturing PMI. The weaker numbers raised concerns that the Federal Reserve would slow down the pace of rate hikes after June. The dollar index touched its lowest level since November, reaching 96.46.

Oil prices extended declines on escalating tensions in the Middle East, after four Arab nations, including Saudi Arabia, cut ties with Qatar. Markets fear the diplomatic spat could hamper a global deal to reduce oil production levels, sending WTI crude prices below $48 a barrel since the news broke yesterday. Prices have been fluctuating around the $47.25 area in the past two trading sessions.

Gold extended gains to reach $1289.38 an ounce, helped by a broadly weaker dollar and safe haven demand.