FX market outlook

FX market outlook

Posted on Monday, July 3 2017 at 8:56 am GMT+0000

Dollar modestly up; euro falls below 1.14.

Today’s Asian session saw the dollar broadly advancing relative to other majors, though its gains were limited in nature. China’s Caixin manufacturing PMI positively surprised, pushing the yuan higher, while a negative backdrop could potentially form for the yen after Prime Minister Shinzo Abe’s Liberal Democratic Party lost an election in Tokyo.

As Asian traders were completing their day, the dollar index was up two-tenths of a percent at 95.79. The index, which gauges the greenback against a basket of major currencies, hit a nine-month low of 95.47 during Friday’s trading. The US currency suffered sizable losses last week against the euro, pound and the loonie after hawkish (or hawkish-perceived) comments by the European Central Bank, Bank of England and Bank of Canada heads.

Dollar/yen was last up four-tenths of a percent on the day at 112.81. Euro/dollar and pound/dollar were both down two-tenths of a percent with euro/dollar marginally below the 1.14 handle and pound/dollar at the 1.30 mark. Dollar/loonie was up more than two-tenths of a percent, eyeing the 1.30 handle.

The yen could be under pressure today after Prime Minister Shinzo Abe’s party suffered a defeat in an election yesterday in Tokyo, the nation’s capital. Tokyo elections have on occasion served as bellwethers for the outcome in the upcoming general elections. Adding to that the fact that the Bank of Japan is one of the few major central banks which has not yet signaled scaling back on its ultra-loose monetary policy, and a weaker yen further ahead has a greater probability of materializing.

In positive news out of Japan, its Tankan large manufactures and non-manufacturers indices both showed an improvement during the second quarter of the year. The yen posted some minor gains relative to the greenback as the data became public.

The June Caixin manufacturing PMI out of China added to last week’s upbeat official PMI figures. Specifically, it came at 50.4, beating forecasts for a reading of 49.5, while it was above May’s 49.6. The Chinese currency benefitted upon data release. Dollar/yuan last traded slightly up on the day at 6.78. The pair contracted in the previous four days.

China and Hong Kong are today launching a “Bond Connect” scheme is an effort to develop mutual capital markets access.

The commodity-linked Australian and New Zealand dollar were both trading down two-tenths of percent versus their US counterpart with the close of Asian markets at $0.7674 and $0.7314 respectively. The aussie failed to receive a boost after the positive figure for Chinese manufacturing PMI. Australia and China trade heavily with each other.

In other Australian news, the country’s central bank will be holding its monthly policy meeting tomorrow during which it is expected to maintain its key benchmark rate at the record low of 1.5%.

Turning to commodities, gold hit a one-and-a-half-month low of $1234.72 an ounce in today’s trading. It was las down two-tenths of a percent, just shy of the $1235 level. WTI and Brent crude last traded at $46.29 and $48.99 a barrel respectively, both up five-tenths of a percent.

As regards the rest of the day, manufacturing PMI figures out of the US, eurozone and the UK will be gathering the forex market participants’ attention. Bank of England Governor Mark Carney is also scheduled to speak at 12:00 GMT.