FX market outlook

FX market outlook

Posted on Wednesday, August 2 2017 at 8:09 am GMT+0000

Asian currencies weaken against dollar as euro, sterling firm up; oil under pressure

As traders in Europe were about to start the day, the dollar managed to retrace some of its losses against Asian currencies. However, the dollar index was moderately down at 93.01 as the euro and sterling strengthened.

A weak labor market drove the New Zealand dollar lower during the Asian session, as the figures curbed the possibility of a shift in the central bank’s neutral guidance on monetary policy. Change in employment fell 0.2% in the second quarter, faring worse than the expected 0.7% expansion and well below 1.2% reported in the prior quarter. Quarterly (0.4%) and annual wage inflation (1.6%) mirrored expectations and prior periods. However, at 1.6% expansion in the second quarter, annual wage inflation stands below consumer price inflation at 1.7%. Kiwi/dollar fell half a percent to last trade at 0.7426 ahead of European trading.

The aussie lost ground against its US counterpart during the first session of the day, with the pair last trading at 0.7963.

With the increasing divergence between the European Central Bank and the Bank of Japan on their monetary policy outlook, the euro surged against the yen hitting an intra-day high of 131.17; a level last seen in February 2016. Traders are placing bets that the ECB will announce monetary policy tightening in autumn, while the probability of Japan’s central bank doing the same has lessened.

The euro continued strengthening against the dollar, with the pair last trading at 1.1830 ahead of the European open. Dollar traders are likely starting to position for key events this week, notably Friday’s US employment report. For potential impact on the dollar, the market is also awaiting the US ADP jobs report and comments by San Francisco Fed President John Williams and Cleveland Fed chief Loretta Mester due later in the session. Dollar/yen was last up a third-of-a-percent at 110.70.

In other forex moves, sterling rose against the greenback to last trade at $1.3211 ahead of the key construction PMI data due at 9:30 GMT and tomorrow’s Bank of England meeting.

Looking at commodities, oil was under pressure during the Asian session with WTI falling further below the $50-mark. The American Petroleum Institute’s (API) reported that US crude stocks rose by 1.8 million barrels in the week ending July 28 to 488.8 million. This has pushed back hopes that the recent inventory pullback was a sign of a tightening US market. WTI was last trading at $48.80 a barrel and Brent was at $51.45 a barrel.

As the greenback strengthened against the yen, gold lost ground with the precious metal under slight pressure today. Gold was last trading at $1,267.14 an ounce.