FX market outlook

FX market outlook

Dollar steady ahead of voting; aussie down on disappointing China trade data.

The currency market is clearly positioning for a Clinton win and this helped the US dollar remain firm against the yen today after a big jump on Monday. The latest polls are showing that Democrat Hillary Clinton has a lead of four percentage points against Republican candidate Donald Trump as voting begins in the US today.

Investors appear to be mainly focused on the US elections and data out of China today had little impact on the markets. US equity markets rose on expectations of a Clinton victory and the S&P had another rally to break the longest losing streak it has had in six years.

However, the surge the dollar saw against safe havens on Monday seems to have lost some momentum today as voting has already begun in some US states. Investors will likely take on some caution today.

The dollar consolidated gains versus the yen in the 104-yen handle in Asian trading today. The greenback recorded its biggest one-day increase against the Japanese currency in almost four months on Monday to hit a high of 104.62 yen.

The euro gave back some gains made against the dollar and traded around $1.1040 today, easing from Friday’s four-week peak of $1.1139, which was its highest since October 11.

The Mexican peso, which tends to be considered a barometer of US elections and risk sentiment, held near levels reached on Monday after receiving a boost from news that Clinton was cleared from criminal charges by the FBI regarding her use of a private email server while she was Secretary of State. USDMXN edged slightly lower today to 18.54 pesos.

In other currencies, the aussie fell below the key $0.7700 against the greenback after being placed under pressure from disappointing Australian business confidence data and weak trade data out of China, which is Australia’s major trading partner.

Chinese trade was sluggish in October and came in below estimates, meaning that global demand was still weak. Exports were down 7.3% year-on-year in October versus a 6% fall expected but not as bad as September’s 10% drop. Imports were down 1.4% year-on-year versus 1% expected but better than September’s 1.9% drop. The overall trade balance figure for September came in with a surplus of $49.06 billion, narrower than the $51.07 billion expected.

Looking ahead, the main economic data to watch for today will be UK manufacturing production and US JOLTS numbers. German industrial production data was out already, showing a bigger-than-expected drop. Industrial output fell by 1.8% month-on-month in September versus a fall of 0.5% expected.

Apart from the economic data, the US elections will likely be the main focus of the markets today. The earliest time a winner can be declared will be at 4:00GMT on Wednesday.