FX market outlook

FX market outlook

Posted on Thursday, August 10 2017 at 8:34 am GMT+0000

Lingering US-North Korea tensions continue to constrain markets, kiwi falls on RBNZ

Intensifying turmoil between the US and North Korea continued to strain forex markets across the globe and to lift demand for assets perceived as safe havens for the second day. The yen and gold continued rising, while the Swiss franc took a breather against the dollar (last trading at 0.9660 francs) and the euro, but kept most of its yesterday’s hefty gains.

North Korea went further with its threat to the US by providing detailed plans about how it plans to launch missile strikes on the US-Pacific territory of Guam. The country plans to fly four missiles over Japan and land them 30-40km from Guam. While North Korea often threatens to attack the US, the revelation of this plan was unusual. At the same time, North Korea dismissed threats by President Trump as a lot of “nonsense”.

Looking at currency movements during the Asian session, the yen continued strengthening against the dollar, with the pair trading below the 110 level at 109.96 ahead of European trading. The yen also gained against the euro, with euro/yen dropping to 129.03. The dollar index was up 0.15% to 93.68 as both the euro and sterling weakened against the greenback.

The kiwi came off a three-week low immediately upon the release of the Reserve Bank of New Zealand monetary policy statement. As widely expected, the bank kept its official cash rate unchanged at 1.75% and did not sound as dovish as investors expected. Specifically, the RBNZ tempered its language on concerns around the kiwi appreciation. However, the early gains were short-lived as the New Zealand dollar tumbled to the lowest since July 18 to last trade at $0.7278. Retail sales through credit cards in New Zealand disappointed as the July figure grew only 2% annually, down from 4.5% in the prior month. Monthly, the same figure fell 0.5% coming in well below expectations of a 0.3% gain.

The euro fell a quarter-of-a-percent against the dollar to trade at $1.1728 as European markets opened. Disappointment around worse French monthly industrial production in June added negative pressure to the euro. The figure showed a decline of 1.1% versus expectations for a 0.5% drop and reversing from a 1.9% gain in May. There are no other major economic data releases scheduled for the eurozone later in the day.

Sterling slid against the dollar below the $1.3000 mark. The Royal Institution of Chartered Surveyors announced earlier today that  UK house balance was only 1% positive against expectations of an 8% positive figure. Traders will be focusing on figures detailing manufacturing activity in the UK that are due to be released at 8:30 GMT.

Later in the session dollar traders will be busy monitoring producer prices in the US, ahead of the key inflation figure tomorrow.

Oil prices rose almost half a percent in today’s trading following a bigger-than-expected drop in US crude inventories. EIA reported that US crude inventories fell last week as refineries boosted output to the highest percentage of capacity in 12 years. WTI was last trading at $49.74 a barrel while Brent was at $52.95.

Gold was up for the third day, hitting an intra-day high of $1,280.38 an ounce that was last recorded mid-June.