FX market outlook

FX market outlook

Dollar trims gains against yen; RBA minutes fail to lift aussie.

The US dollar rally paused on Tuesday after a big jump on Monday while the sell-off in US treasuries also took a breather. Asian equity markets were softer following a muted Wall Street session.

On Monday, the dollar index closed above 100 for the first time this year as markets are pricing in a Fed rate hike next month and are expecting inflation to rise due to plans for increased fiscal spending by the Trump administration. The index trimmed gains to slip to 99.883 in Asian trade today.

The dollar was weaker against the yen after hitting a five-month high of 108.53 yen yesterday. USDJPY slipped to 107.78 in Asia today.

The euro paused its decline against the dollar and rose to a session high of $1.0770, after having reached $1.0708 yesterday, a level not seen since November 2015. The single currency has been under pressure lately due to concerns over upcoming political risk in Europe (such as Italy’s referendum next month, election’s in France next year).

The pound reached an early session high of $1.2528 before sliding to $1.2463.

The Reserve Bank of Australia released policy meeting minutes but there was little impact on the Australian dollar since the meeting was before the US election results, so they were a little out of date. The minutes showed inflation risks were balanced and this indicated a steadier monetary policy stance from now on. Also the RBA was optimistic on global growth but this view may now be put into question after Trump’s victory. The minutes failed to spur the rally in the AUDUSD pair and after hitting a session high of $0.7580 before the minutes, the pair slipped down to $0.7534.

Gold prices hit a five-month low of $1211.38 an ounce no Monday but trimmed some losses to rise to $1231.19 in Asia today. The precious metal is sensitive to interest rates and with the prospect of a rate hike in the US, it has been sold off recently.

Oil gained for the first time in a week. Brent crude rose to a session high of $45.25 a barrel from yesterday’s low of $43.55. West Texas Intermediate climbed to $44.23.

The rest of today’s economic calendar will be quite busy as GDP data will be released from around the Eurozone. Inflation data out of the UK will be important to watch. Retail sales for October and the Empire State survey are due from the US later in the day but what will attract more attention will be the flurry of Fed speakers which include Boston Fed President Eric Rosengren, Fed Governor Daniel Tarullo, Fed Vice Chair Stanley Fischer and Dallas Fed President Rob Kaplan.