FX market outlook

FX market outlook

Posted on Tuesday, August 8 2017 at 8:33 am GMT+0000

Dollar weakens in wake of US inflation, euro strengthens and oil pressured

Chinese economic data dominated today’s Asian session as dollar traders await key consumer prices figures for July due on Friday. The dollar index gave up on some of the strong gains from Friday to last trade at 93.36. The euro was up against the greenback, trading above the 1.1800 handle.

Disappointing trade data out of China got some investors worried about a slowdown in the global economy. Annually, exports from the mainland grew 7.2% in July, slowing down from 11.3% in June and coming below 10.9% economists predicted. The pace of imports (at 11.0%) was stronger due to a pick-up in domestic demand, but also came in below expectations of 16.6% and prior months. This is the slowest gain in imports since January of this year. By contrast, figures pointing to strong forex reserves in China propelled the yuan to a 10-month high against the greenback (6.70 yuan per dollar). The country’s foreign reserves grew twice the expected amount last month as a result of tighter regulation and a weaker dollar that curbed capital outflows.

Other key economic releases will come out of the US later in the session when the Labor Statistics releases the JOLTs report concerning the number of job openings in June. Economists are expecting the figure to rise to 5.78 million, up from 5.67 million in May. This report comes out ahead of the key producer price index due on Thursday and inflation due on Friday. Market participants are eager to understand the latest trend in consumer prices as a signal for future Federal Reserve interest rate hikes. Fed funds futures are at the moment giving the highest chance of another rate hike (around 50%) this year for the meeting in December.

The dollar index, which tracks the greenback’s strength against a basket of six major rivals, weakened modestly to last trade at 93.36. Dollar/yen was down to last trade at 110.60, euro/dollar was up at 1.1803 while pound/dollar was flat at 1.3033 ahead of European trading.

The kiwi was among the few currencies to weaken against its US counterpart in today’s forex market. Kiwi/dollar slipped to its lowest in three weeks ahead of the Reserve Bank of New Zealand meeting on Thursday. Many investors are predicting the central bank will become more dovish considering the soggy inflation numbers. Kiwi/dollar was last trading at 0.7355.

Out of Europe, Germany posted another set of disappointing figures, following yesterday’s industrial output data. German monthly exports (down 2.8% versus the expectations of a 0.3% decline) and imports (down 4.5% against a 0.2% gain) fared much worse than estimated in June. The euro weakened slightly in the wake of this release, but still remained above the 1.1800 handle.

Oil prices have been pressured in the wake of OPEC and non-OPEC officials meeting in Abu Dhabi to lift compliance of participating members in a deal to cut oil supply. The downward trend in oil prices started last week when data showed OPEC exports hit a 2017 high in July. WTI was last trading at $49.31 a barrel, while Brent was at $52.27 ahead of European trading.

Gold, which is inversely related to the US dollar, has been rising today. The precious metal last traded just under the $1,260 level.