FX market outlook

FX market outlook

Posted on Friday, September 1 2017 at 9:04 am GMT+0000

Dollar ticks up in Asia ahead of NFP; Aussie weaker ahead of busy week

With geopolitical risks remaining in the background and the tropical Storm Harvey devastating the Southern US, the dollar managed to reverse some of yesterday’s losses during the Asian session. Investors were also forming their predictions for the widely expected nonfarm payrolls released later today. The aussie posted short-lived gains during today’s trading after AIG manufacturing index and the Chinese Caixin came in better than expected.

Following disappointing inflation and consumer spending readings published on Thursday as well as US Treasury Secretary Steven Mnuchin’s remarks which favored a lower currency, the dollar recovered slightly against its peers, with the dollar index edging up by 0.09% to 92.75.

Investors will now wait for the closely watched nonfarm payrolls to be published later today after the private survey ADP showed that the private sector added 237,000 jobs compared to 185,000 expected. In contrast, forecasts for nonfarm payrolls are for them to increase by 180,000, below the previous mark of 209,000.

Moreover, Trump’s trade negotiations team will meet with the Canadian and Mexican representatives in Mexico City to start the second round of NAFTA negotiations. Trump has threatened several times to quit the trade deal, as he believes that it harms the US trade terms and is unfair to American workers after the first round of talks led nowhere.

The yen retreated against the greenback after a sudden rise late on Thursday when renewed geopolitical risks led the currency higher. Particularly, South Korea and Japan participated in joint military exercises on Thursday, using U.S bombers above the Korean peninsula. Dollar/yen was slightly up today by 0.16% at 110.14.

The euro followed a negative path during the Asian trading, falling despite inflation figures released yesterday came in stronger than expected. The currency was trading weaker by 0.22% at 1.1881 as the ECB is expected to reduce asset purchases only gradually after expressing its concerns over a strengthening euro. Note that the ECB policy meeting will kick off next Thursday in Frankfurt.

The “non-decisive ” progress in Brexit negotiations as it was characterized by the European Brexit negotiator, Michel Barnier yesterday, continued weighing on the pound today, driving the currency down by 0.12% at $1.2914.

Meanwhile, China and Australia released their Manufacturing activity surveys for the month of August. The Chinese Caixin manufacturing PMI increased by 0.5 points to 51.6, while analysts projected the indicator to decline to 50.9. The Australian Industry Group (AIG) manufacturing index also improved, rising to 59.8 from 56 seen in the previous month.

The above data supported the aussie overnight. However, the currency could not sustain its gains afterwards. Dollar/aussie rose from a closing price of 0.7944 yesterday to a session high of 0.7955 before it sunk to 0.7933. This comes ahead of a busy calendar next week for the aussie as a bunch of data will be released, including inflation and GDP growth numbers, while the RBA is also expected to decide on interest rates on Tuesday.

The kiwi fell by 0.31% to $0.7156 as terms of trade in the second quarter published early in the Asian session grow less than expected. The figure decreased from 8% in the previous quarter to 2.4%, missing the expectations of 3%.

Looking at commodities, oil prices were down despite the disastrous tropical storm Harvey, which caused key refineries and other energy facilities in Texas to shut down, including the Colonial pipeline which is the country’s largest energy supply system. WTI crude fell by 1% to $46.76 while Brent was down by 0.61% at $52.54. Gold dropped by 0.25% to $1318.58 per ounce.