FX market outlook

FX market outlook

Posted on Thursday, October 5 2017 at 8:51 am GMT+0000

Dollar holds strong amid rising economic confidence; aussie tumbles after retail sales shrink

On Thursday, the dollar opened higher in the Asian session, gaining from investor’s increasing confidence on the US economy, while its Australian counterpart fell sharply after underpaid consumers tightened their spending, driving retail sales to the lowest level in five years.

The dollar index moved from a yesterday’s closing price of 93.28 to a high of 93.37 in Asia before it slipped back as upbeat US non-manufacturing data released on Thursday continued to support the dollar against its rivals and the Fed chair Janet Yellen failed to give any signals on monetary policy during her speech at the at the Community Banking in the 21st Century Conference in St. Louis.

Jobless claims out of the US will be in focus today ahead of the nonfarm payrolls on Friday. In addition, a number of FOMC members will give some speeches during the day.

Dollar/yen was flat around 112.65.

The euro was trading flat around $1.1757 ahead of the ECB’s September meeting minutes due later today. Investors will look for changes in the language of the minutes, especially regarding the currency which was repeatedly criticized for its strength by ECB policymakers. Moreover, they will be on the lookout for details related to the tapering of the quantitative easing program as ECB policymakers are said to announce an outline for a gradual exit from the QE policy in their next meeting. However, recent chatter from ECB officials supported an adjustment of the policy rather than a termination.

The pound was moving sideways around $1.3241, being neutral on cautious Brexit remarks made by the BOE’s deputy governor, Sam Woods on Wednesday.  Woods claimed that a transitional period needed for businesses to adjust after the Britain’s exit from the EU should be agreed by Christmas before firms start considering their contingency plans.

Australian August’s retail sales posted their biggest monthly fall since September 2012  weighed mainly by a shrinking in household goods’ purchases. The figure declined by 0.6%, while analysts anticipated a growth of 0.3%. This also followed a downwardly revised contraction of 0.2% in July. On the other hand, the trade balance for the same month surprised to the upside, increasing from the upwardly revised amount of A$0.808bn to A$0.989bn and exceeding the forecast of A$0.875bn. Exports jumped by 1.0% boosted mainly by a 10% increase in iron ore overseas sales. The aussie tumbled by 0.50% on the day to $0.7825.

In New Zealand, the leader of the First Party, Winston Peters, said on social media to hold coalition talks today first with the ruling National Party and then with the opposition Labour Party. However, he added that he will not take any final decision until final election votes come out on Saturday. The kiwi was 0.17% down to $0.7152.

Dollar/loonie was slightly up at $1.2480 ahead of trade data released later in the day.

Regarding commodities, oil prices retreated from yesterday’s highs despite the EIA report showing a steep fall in US crude oil inventories as the same report also indicated that US crude exports picked by 1.98mn barrels compared to 1.5mn seen previously. Meanwhile, operations in a Libyan oilfield restarted, putting some pressure on oil prices. WTI crude dropped by 0.10% to $49.94 per barrel and Brent was slightly down to $55.78.

Gold was 0.12% up at $1,275.70 per ounce.