FX market outlook

FX market outlook

Posted on Wednesday, June 21 2017 at 8:32 am GMT+0000

Oil remains close to 7-month lows; dollar little changed

As Asian markets are completing their trading day, the dollar index has eased from yesterday’s one-month high but is still close to that level. In the meantime, WTI and Brent crude didn’t manage to post a rebound after yesterday’s sizable losses.

The dollar index, a broader gauge of the greenback’s strength, remains close but below yesterday’s one-month high of 97.87. The greenback was recently supported by key Fed officials communicating that rate normalization should remain on track. Dollar/yen didn’t manage to maintain momentum after yesterday’s more than three-week high and finished the day lower. The pair continues declining today and was last down two-tenths of a percent at 111.25. Euro/dollar was flat at 1.1132 and close to yesterday’s three-week low. Pound/dollar which posted significant losses following dovish remarks by Bank of England Governor Mark Carney yesterday, which pushed the pair to two-month lows, was last down marginally below the 1.26 handle.

The oil-linked Canadian dollar continues retreating versus its US counterpart. Dollar/loonie yesterday finished the day four-tenths of a percent higher. With the close of Asian markets, the pair is slightly up at 1.3275.

It is noteworthy that the greenback was also partially negatively affected by lower oil prices as those weaken inflationary pressures, translating into lower US Treasury yields. Lower yields render dollar investments less attractive.

Other commodity-currencies and specifically the Australian and New Zealand dollar were also down on the day versus the greenback. Aussie/dollar last traded at 0.7563, after recording a one-week low of 0.7554 earlier in the day. Kiwi/dollar last traded at 0.7227 after commencing the day at 0.7238. The kiwi was hurt by the outcome of yesterday’s bi-weekly dairy auction which showed prices declining by 0.8%, contrasting the 0.6% rise from two-weeks ago. New Zealand relies heavily on milk product exports. On a different note, the Reserve Bank of New Zealand is expected to announce that it will maintain its key cash rate at the record low of 1.75% as it completes its meeting tomorrow.

Transitioning from forex markets to commodities, gold was last up two-tenths of a percent, trading around $1245 an ounce after declining for five days in a row and falling to a one-month low in yesterday’s trading. WTI and Brent crude were both close to yesterday’s seven month lows, below $44 and $46 a barrel respectively. The two benchmarks fell yesterday on reports of increased supply by Libya and Nigeria. The Energy Information Administration’s (EIA) weekly report on US crude oil inventories will be released later in the day. The report will attract even more interest than usual given WTI’s massive declines recently.