FX market outlook

FX market outlook

Posted on Friday, September 29 2017 at 9:01 am GMT+0000

Dollar steady as uncertainties on tax reforms weigh; focus on inflation

On Friday, currencies in Asia were in a quiet trade, with the dollar moving sideways near yesterday’s lows as positive sentiment on Trump’s tax proposals was fading and investors were less certain on whether those would pass in Congress. However, the focus during the day will be on the US inflation readings which might affect the Fed’s views on future monetary policy if they come in as a surprise.

Although the US tax cuts proposed by the Trump administration raised confidence initially on the country’s fiscal policy, investors were less certain in the days that followed after Trump’s speech did not mention any details on how lower taxes would be funded and therefore increased fears that those might boost the nation’s debt levels.

The dollar index was trading flat at 93.16 with investors being cautious ahead of PCE figures expected to be published during the European trading hours. Forecasts are for the index – which is closely watched by the Fed – to remain steady at 1.4% y/y.

In Japan, inflation readings for the month of August rose as expected, while demand for labor remained the strongest in 43 years.

The national CPI figure was in line with forecasts, jumping by 0.3 percentage points to 0.7% y/y, while the core equivalent, which is closely watched by the BOJ, climbed from 0.5% to 0.7%. Despite this rise, the index is still far below the BOJ’s inflation target of 2%, dampening any hopes for monetary stimulus reduction anytime soon.

The Japanese jobs to applications ratio remained flat at 1.52, below the forecast of 1.53. However, this was still one of the largest marks posted since 1974.

Initial estimates for Japanese Industrial production in August was a surprise to analysts, as industrial production grew by 2.1% compared to the 1.9% expected, following a decline of 0.8% in the previous month.

Dollar/yen climbed by 0.23% on the day to 112.58.

Euro/dollar was trading flat during the session around 1.1780 but managed to tick up to 1.1800 afterwards on the back of a weaker dollar. Next up, preliminary Eurozone inflation readings for the month of September are expected to show a moderate increase from 1.5% to 1.6%.

Pound/dollar edged down to 1.3415 despite both the Nationwide house price index and GfK consumer confidence coming in better than expected.

In other currencies, the aussie was in a downtrend, falling by 0.25% to $0.7837 mainly due to the dollar’s strength, while the kiwi dropped by 0.26% to 0.7215 as political uncertainties continue to weigh on the currency.

Dollar/loonie stood flat at 1.2431 ahead of Canada’s July’s monthly GDP growth figures’ release later today.

In energy markets, WTI crude retreated from the 5-month high of $52.86 reached on Thursday, falling by 0.37% to $51.37 per barrel. Brent decreased by 0.14% to $57.33, down from yesterday’s high of $58.65.