FX market outlook

FX market outlook

Posted on Tuesday, October 3 2017 at 8:26 am GMT+0000

Dollar bulls in charge on improved US economic outlook; aussie down after RBA policy meeting

On Tuesday, rising economic prospects in the US kicked the dollar higher to a 1 ½-month high against its major rivals during Asian trading, while a steady monetary policy and an unchanged economic outlook as indicated overnight by RBA policymakers sent the aussie down to a two-month low.

The spot dollar index stretched its uptrend during the Asian session, reaching a fresh 1 ½-month high of 93.92 as confidence in the US economic environment was enhanced after the release of upbeat manufacturing PMI readings on Monday and the Fed retained its hawkish stance on monetary policy. Additional support for the greenback was also found as the US 10-year Treasury yields peaked at a three-month high of 2.371 percent overnight, whereas geopolitical tensions did not escalate despite Trump refusing to start a discussion with North Korea on nuclear issues for the second time.

Dollar/yen rose by 0.20% on the day to 112.96 ahead of the Japanese snap elections later in the month. Meanwhile, the leader of the newly launched Party of Hope and Tokyo’s governor, Yuriko Koike, showed reluctance to join the snap elections scheduled for October 22.

Gold stood flat at a two-week low of $1,270 per ounce.

The euro extended losses during the session, breaking marginally the $1.17-key level at $1.1695 as political uncertainties in Spain and Germany were on the rise after a violent independent vote in Spain on Sunday and inconclusive federal elections in Germany a couple of weeks ago. Investors will now focus on the ECB meeting minutes published on Thursday for any clues on monetary policy moving forward.

The pound posted losses versus the greenback, edging down to $1.3262, weighed by risks revolving Brexit and economic conditions in the nation.

In the first hours of Asian trading, the RBA decided to keep interest rates on hold at a record low of 1.5%. Moreover, the monetary statement did not defer much compared to the one released in September as policymakers reiterated their concerns on a stronger currency, subdued inflation, and wage growth whilst they also stayed cautious on household debt levels. A few hours earlier, August’s housing data out of Australia came in lower than expected, adding to losses for the aussie. Building approvals grew by 0.4% m/m compared to an upwardly revised contraction of 1.2% seen in the previous month, missing expectations of a 1.1% growth. Private house approvals declined by 0.6% m/m after rising by 1.0% (revised upwards from 0.0%).

The aussie tumbled to a two-month low of $0.7784 but it managed to climb to 0.7810 before Asian markets close for the day.

The kiwi retreated by 0.35% amid political uncertainty in New Zealand while businesses were more concerned about the country’s economic outlook in the next six months, driving the NZIER business confidence index to 5% in the third quarter from the 18% posted in the previous quarter.

In energy markets, oil was trading flat near yesterday’s two-week lows. WTI crude stood around $50.40 per barrel and Brent was hovering around $55.88.