FX market outlookPosted on Tuesday, October 17 2017 at 8:48 am GMT+0000
Dollar rises as hawkish Fed candidate in favor; aussie extends losses after RBA minutes
On Tuesday, the dollar drifted higher in Asia on speculations that a hawkish Fed candidate impressed the US President. On the other hand, the Australian dollar dipped into losses after the RBA meeting minutes reiterated concerns on overloaded household debt.
Markets were surprised to hear on late Monday that the Stanford Economist, John Taylor, who was in a lower position on Trump’s shortlist of Fed chief candidates made an impression to Trump after an hour-long interview last week in the White House. Taylor is considered as more hawkish than the current Fed chair, Janet Yellen, as his studies on monetary policy suggest that interest rates should be three times higher than they currently are. Still, the former Fed board governor Kevin Warsh remains at the head of the list despite a group of economists criticizing his relative academic credentials.
The dollar gained 0.12% on the day versus its major rivals, with the index climbing to 93.42. Dollar/yen was trading flat around 112.14 during the session, while safe-haven gold fell by 0.32% to $1,290.30 per ounce despite North Korea’s deputy UN ambassador warning that a nuclear war “could break out any moment”.
In a two-hour dinner in Brussels on late Monday, the British Prime Minister, Theresa May, and the chief of the European Commission, Jean-Claude Junker, agreed that Brexit talks should “accelerate over the months to come”, giving no details on the issues discussed. Today, the UK negotiator, David Davis and the EU negotiator, Michel Barnier will also join the meeting, three days before the EU summit in Brussels. However, the outcome of the May-Juncker meeting failed to provide support to the pound as the UK government worries that Brexit negotiations will break down unless the EU shows the willingness to move on to trade negotiations. The pound remained flat around five-day lows reached yesterday at $1.3251.
Later on the day, markets will keep a close eye on inflation readings out of the UK and on BOE chief Mark Carney’s testimony before the parliament’s Treasury select committee.
The euro was down by 0.25% at $1.1765 weighed by political risks in Germany, Austria, and Spain ahead of the CPI figures released during the European trading hours.
According to the RBA October’s meeting minutes, the central bank has no intention to raise rates anytime soon as the statement supported that higher rates elsewhere “were a welcome development” but did not have any “mechanical implications” for Australia’s rate setting. Moreover, the statement reiterated that household indebtedness continued to attract policymakers’ attention as the debt level increased in an “environment of low interest rates and weak income growth”. Concluding, policymakers stated that economic growth is expected to grow gradually over the coming year, supported by the current accommodative monetary policy. Following the minutes, the aussie dropped to a two-day low of $0.7832 before it edged up to $0.7847.
The kiwi managed to touch a two-week high of $0.7204 in the wake of better-than-expected CPI figures released early in the Asian session but fell back to $0.7168 afterwards. The numbers showed that New Zealand’s consumer prices jumped by 0.5% q/q in the third quarter after remaining unchanged at 0.0% in the previous quarter, while analysts projected a growth of 0.4%. On a yearly basis, prices rose by 1.9%, above the 1.8% forecasted and 1.7% seen previously.