FX market outlook

FX market outlook

Posted on Friday, November 3 2017 at 9:23 am GMT+0000

Dollar little changed ahead of jobs report; aussie loses ground on weak retail sales

As Asian traders were completing this week’s trading, the dollar was not much changed relative to most major counterparts with investors’ attention falling to the US jobs report due at 1230 GMT.

At 0818 GMT, the dollar’s index against a basket of currencies was 0.1% higher, trading at 94.79. It yesterday fell to a one-week low of 94.41, perhaps on uncertainty related to US tax reform. Euro/dollar was 0.1% lower and not far below 1.1650. Dollar/yen was flat, a few pips above the 114 handle. Japanese markets were closed today for Culture Day.

President Trump yesterday announced that current Fed Board of Governors member Jerome Powell is his pick to lead the Federal Reserve when Janet Yellen’s term expires in February. Given what preceded, this was already priced in by the markets -at least for the most part- and reaction in the forex markets was subdued upon the news.

Forecasts are for US nonfarm payrolls to have increased by 310k in October, a vast difference to September’s decline by 33k. However, just as last month’s fall was attributed to hurricane-related disruptions, October’s rise will in large part be coming from the recovery efforts following the extreme natural phenomena hitting US soil. Having this in mind, market participants are, similar to the previous month’s report, likely to focus on wage growth rather than the number of positions added to the economy. Expectations are for average earnings to increase by 0.2% m/m and 2.7% y/y, slowing down from September’s 0.5% and 2.9% respectively.

Pound/dollar was last 0.1% lower, trading close a near one-month low of 1.3037 hit earlier in the day. Euro/pound was more or less unchanged relative to yesterday’s close, trading around 0.8925. Sterling yesterday recorded heavy losses (in excess of 1%) relative to both currencies following what markets interpreted as a “dovish hike” by the Bank of England.

The Australian dollar recorded losses versus its US counterpart after September retail sales surprised to the downside (0.0% growth Vs expectations of 0.4%). Aussie/dollar was last 0.5% lower at 0.7973. Kiwi/dollar was up by 0.1% at 0.6919, rising for the third straight day and further distancing itself from last week’s multi-month low of 0.6816.

In commodities, gold was 0.1% lower at $1,275.44 an ounce. WTI and Brent crude were 0.5% and 0.4% higher at $54.81 and $60.85 a barrel, trading near multi-month highs. The US Baker Hughes oil rig count will be released at 1700 GMT.

Canadian employment data will be released at 1230 GMT. Other important data out of the US will pertain to September’s factory orders as well as October’s ISM non-manufacturing PMI (both due at 1400 GMT). Minneapolis Fed President and FOMC voting member Neel Kashkari is scheduled to participate in a Q&A session at 1615 GMT.