FX market outlook

FX market outlook

Posted on Thursday, September 7 2017 at 8:32 am GMT+0000

Dollar fails to rise on higher US debt ceiling; focus on ECB

After a surprise rate hike from the Bank of Canada, US Congressional leaders and the president decided unexpectedly on late Wednesday to raise the government’s debt limit. However, the dollar failed to strengthen, as geopolitical risks continued to weigh on the markets, while the Fed’s Vice Chairman surprised markets by submitting his resignation. The euro was also in focus, as investors are widely expecting the European Central Bank to kick off its policy meeting later today.

On Wednesday, the US president, Donald Trump agreed with congressional leaders to lift the maximum amount the government can borrow and extend funding until December 15. However, this was a surprise as Trump’s fellow republicans were hoping for a longer-term debt limit extension rather than a shorter-term deal, which was mainly supported by Democrats whose proposal was finally accepted by Trump. The US Treasury Secretary, Steven Mnuchin, said to reporters after the decision that the president chose to keep the period short as he considers raising military funding this year given the heightened risks from North Korea.

In the same day, Trump said that a military response against to North Korean threats was “certainly not his first option”, while he favored stricter sanctions that will likely limit North Korea’s spending on nuclear programs. Meanwhile, in South Korea, the public protested the deployment of the country’s defense system which took place early today in order to strengthen country’s military power to refute North Korean potential attacks. This comes after the South Korean Business Daily reported that North Korea is planning to fire an intercontinental ballistic missile probably this Saturday when the regime will celebrate the founding day.

In other news out of the US, the Fed Vice Chairman, Stanley Fischer, unexpectedly submitted his resignation on Wednesday eight months before his term ends, saying that he would leave his position in mid-October.

The dollar index could not gain on the debt ceiling decision, retreating by 0.11% to 92.11 during Asian trading.

Dollar/yen declined by 0.13% to 109.09 while dollar/swissie was mainly flat around 0.9562.

Euro/dollar edged up by 0.08% to 1.1925 ahead of the ECB policy meeting later today when the markets will focus on ECB Chief Maio Draghi’s new hints on the strategy the central bank will follow to taper its asset holdings.

The loonie eased against its US counterpart but maintained most of the gains it attracted yesterday, which drove the currency to a more than two-year high after the BOC decided to hike rates to 1% on Wednesday. Dollar/loonie was slightly down by 0.01% at 1.2217.

The aussie followed a downtrend early in the session as data out of the country showed that retail sales and trade balance fell short of expectations in July. Household spending posted zero growth m/m, missing the forecast of a rise of 0.3%. The figure fell below the previous mark of 0.2% which was downwardly revised from 0.3%. Regarding the trade balance, the surplus narrowed from A$0.888bn to A$0.460bn, while analysts expected a surplus of A$0.875bn.

Following the data, the aussie retreated by 0.16% to $0.7986.

Looking at commodities, oil prices declined from yesterday’s highs as the weekly report from the American Petroleum Institute showed that oil inventories rose by 2.791mn barrels last week while expectations were for the figure to increase by 4.000mn barrels. The change in inventories was at negative 5.780mn barrels in the week ending August 31. However, experts believe that future reports will give a clearer picture on the negative impact of the disastrous tropical storm Harvey caused to the US oil industry, while the EIA statement is also expected to provide evidence on US oil inventories later today. In the meantime, energy producers are also worried about Hurricane Irma which has battered the Carribean yesterday and is currently heading towards Florida,

WTI crude dropped by 0.24% to $49.04 per barrel while Brent declined by 0.35% to $54.01.

Gold was up by 0.26% to 1337.40 an ounce as geopolitical uncertainties linger in the background.