FX market outlook

FX market outlook

Dollar weakens as focus turns to US election uncertainty, gold rallies.

There was a risk off environment in Asia on Wednesday which followed through from the US session. The selloff in the US dollar played on sentiment and therefore safe havens like gold and the yen gained. The upbeat sentiment on Tuesday from strong China PMI data has faded as the focus turned to the US elections. Equity markets also joined the selloff while the VIX (volatility index) rose.

Some recent polls show Republican candidate Donald Trump leading Democratic candidate Hillary Clinton. A Trump win means uncertainty ahead whereas a Clinton victory would mean a continuation of the Obama administration’s policies, and this would lead to a relief rally in the markets. But for now the tight race is likely to keep investors on the sidelines.

The Federal Reserve meeting later today is also a risk event although it is now being overshadowed by elections jitters. The markets do not expect a rate hike at this FOMC meeting it is not as strong a risk factor.

The dollar index was down in Asian trading, while the US currency weakened further against the safe haven yen despite a positive US ISM manufacturing PMI number out yesterday.  USDJPY slipped to an Asian session low of 103.61 yen.

The greenback also dropped against another safe haven – the Swiss Franc – to reach a low of 0.9725.

The euro made some strong gains against the dollar to rise to a 3-week high of $1.1073.

Gold prices pushed higher to a 1-month high of $1292.97 as investors rushed to the safety of the precious metal.

The Mexican peso, which is considered to be a barometer of the market’s expectations of the US election outcome, weakened further against the dollar today as Trump is moving up in the polls. USDMXN rose to a high of 19.3377, the strongest level in almost 4 weeks.

Data out during the Asian session today was mostly ignored as the focus of the markets was elsewhere. The aussie gave back post-RBA gains and has fallen to a low of $0.7612 against the greenback. The AUD tends to fall when there is risk aversion. Also, disappointing Australian building approvals data today dampened appetite for the aussie.

Oil extended losses as API data out on Tuesday showed US crude stockpiles expanded. WTI futures fell to $46.19 a barrel in the Asian session, while Brent crude traded around $47.80 in Asia, the lowest in over a month.

Coming up in the European session, focus will be on October final manufacturing PMI data out of the Eurozone.