FX market outlook

FX market outlook

Risk appetite boosts dollar above 140 yen as FBI clears Clinton of criminal charges.

There was a relief rally in the markets on Monday as the FBI released a letter on Sunday reaffirming that Hillary Clinton was clear from criminal charges regarding her email scandal. This news comes on the eve of the US elections and boosted the dollar against the safe haven yen as risk appetite was boosted.

Last week the FBI reopened the Clinton email investigation after some new evidence appeared related to her use of a private e-mail server. After reviewing the evidence the FBI closed the case again, with less than a day before the crucial vote in the US.

Last week markets were roiled by news of new evidence in Clinton’s email scandal and the dollar tumbled below 103 yen but jumped back above 104 yen in Asian trading today to reach a high of 104.57 yen. A Trump victory would bring uncertainty in the markets and hence there was more risk aversion in the markets last week when Clinton fell in the polls.

As risk appetite improved today, gold, a safe haven asset, snapped three straight weeks of gains and fell back below the key $1300 level to $1287.64.

The Swiss Franc, which gained due to the flight to safety last week, gave back gains today. As a result, USDCHF bounced to 0.9778 after having touched as low as 0.9677 on Friday.

Meanwhile, the Mexican peso, which is a proxy for the US election, gained today as the FBI letter suggested Clinton is in the clear again and this increases her chances of winning the election tomorrow. USDMXN in the past two weeks rose from the 18.00 peso level to above 19.50 last week when polls were showing Donald Trump was in the lead. The pair dropped to 18.55 pesos in Asia today.

The broadly stronger dollar knocked the euro off a four-week high of $1.1139 reached on Friday. The single currency fell to as low as $1.1059 in Asia.

The aussie shrugged off weak Australian data that showed the AIG construction index fell to the lowest in almost two years to 45.9 in October from 51.4 in September. The Australian currency, which is risk-sensitive, held steady against the greenback as focus was on the FBI news today and generally on the US elections. AUDUSD traded most of the Asian session above $0.7670.

Crude oil futures rose in Asian trade today on broader risk sentiment. after falling to a six-week low of $43.56 a barrel on Friday, WTI oil climbed to $44.84 a barrel in the Asian session today.

Looking ahead to the rest of the day, the economic calendar is quite light. Retail sales data and the Sentix Investor Confidence report are due out of the Eurozone.