FX market outlook

FX market outlook

Posted on Friday, August 4 2017 at 8:11 am GMT+0000

Dollar in doldrums ahead of NFP data; most other majors and gold firm up

The greenback had yet another setback overnight ahead of the eagerly-anticipated non-farm payrolls data out today. Following yesterday’s disappointing ISM non-manufacturing PMI, the dollar slid on an alleged grand jury issuance of subpoenas about a June 2016 meeting President Trump’s son and his son-in-law held with a Russian lawyer. The dollar index weakened about a tenth-of-a-percent to last trade at 92.74.

In Asia, forex markets had a mixed reaction against the dollar. The yen and the aussie firmed up against the greenback, while the kiwi was slightly pressured (down at $0.7433). The aussie found support from an upbeat economic outlook by the Reserve Bank of Australia and better-than-expected retail sales. Australia’s central bank expects economic growth to pick up over the next two years to around 3%. However little or no improvement is expected in unemployment or wage growth, signaling a shift in monetary policy is not on the table. Monthly retail sales in Australia grew 0.3% in June, above the forecasted rate of 0.2%. In the second quarter retail sales expanded at a 1.5% rate, q/q, above the 1.2% expected gain. Aussie/dollar was last trading at 0.7969. The yen was up as well, mostly due to the broad dollar weakness with the pair last trading at 110.08.

Traders will be closely monitoring the release of the jobs report out of the US later in the day.  Economists are expecting 183,000 more added jobs in July, down from 222K in June; while the unemployment rate is expected at 4.3%. Should the report show the labor market to be in a better condition compared to expectations, it could provide support for the weakening dollar. The US currency has had another setback against most of its peers on further legal actions against Trump’s close aids. Allegedly, a grand jury has issued subpoenas in connection with a meeting Trump’s son and son-in-law held with a Russian lawyer, which is signaling that the investigation against the President’s close circle is gaining momentum.

The euro gained further against the dollar and was last trading at $1.1879. Apart from monthly factory orders out of Germany, no other key data is expected today out of the eurozone. German factory orders rose 1% in June, month-on-month coming in above the 0.5% expected level.

Sterling failed to reverse yesterday’s plunge against the dollar, which was caused by the dovish take by the Bank of England on monetary policy. Pound/dollar was off its lows against the weakened dollar at 1.3140.

The loonie was stronger as traders await employment numbers from Canada as well. Dollar/loonie was last down to trade at 1.2565.

Looking at commodities, oil prices declined while gold was up on the weakness in the greenback. Oil prices tumbled about 0.20% during the Asian session, with WTI last trading at $48.94 a barrel while Brent was at $51.92. Gold was last trading at $1,269.21 an ounce.