FX market outlook

FX market outlook

Posted on Wednesday, November 8 2017 at 9:20 am GMT+0000

Dollar weaker on possible tax cut delay; kiwi steady ahead of RBNZ meeting

The dollar opened weaker in Asia as traders were concerned about a potential delay in the implementation of a corporate tax cut, while they also turned cautious on US-North Korea political developments after Trump delivered a warning message to North Korea. The kiwi stood flat ahead of the RBNZ policy meeting starting later today.

A report by the Washington Post on Tuesday raised questions about the progress of the US tax legislation and hence pressured the dollar. The relevant article stated that Senate Republicans were considering a one-year delay in putting a major corporate tax-cut into effect as the tax code could find difficulties to comply with Senate rules. The sources cited in the report were unidentified.

In the meantime, in South Korea, Trump used a tougher language against the North Korean leader, Kim Jong Un, a day after he called North Korea to “come to the table” and make a deal. He said that the regime’s efforts to develop a nuclear program was putting the country “into grave danger”, advising Kim to “not underestimate” the US. Next, Trump will fly to China to meet President Xi Jinping, with trade and North Korea expected to be on the agenda.

The dollar index which gauges the strength of the greenback against a basket of major currencies notched 0.07% down to 94.80, while safe-haven assets gained some ground against the dollar as investors turned somewhat risk-averse following Trump’s warnings. Dollar/yen declined by 0.24% to 113.75, dollar/swissie fell by 0.14% to 0.9986 and gold moved up by 0.22% to $1,278.40 per ounce.

The euro was mainly flat around $1.1590, and the pound reversed some of yesterday’s gains on news that the UK Prime Minister, Theresa May, was considering firing a member of her cabinet ahead of the resumption of Brexit negotiations on Thursday. According to theBBC and the Sun newspaper, May is likely to dismiss the International Development Secretary Priti Patel after the latter held unauthorized meetings with Israeli officials without May being aware. This comes a week after the Defence Minister Michel Fallon resigned on allegations of sexual misbehavior.

Trade data out of China, showed that growth in exports eased to 6.9% y/y in October compared to 7.2% expected and 8.1% in September, whereas imports increased by 17.2% y/y, above the 16.0% anticipated and below the 18.6% in September.

The aussie retreated slightly after the release of the Chinese trade data, but resumed its uptrend afterwards, rising to $0.7659 (+0.20%).

The kiwi was moving sideways around $0.6908 after a sharp fall amid falling dairy prices ahead of the RBNZ policy meeting expected to start later today. The RBNZ policymakers are projected to hold rates steady at the record low level of 1.75% and adjust their outlook for inflation.

Dollar/loonie changed hands at 1.2752, affected little by remarks made by the BOC Governor Stephen Poloz yesterday. Poloz held a neutral stance on upcoming rate moves, highlighting the fact that the central bank was monitoring wage growth and inflation as well as the economic capacity to see how the economy was responding to July’s and September’s rate hikes.

Turning to energy prices, WTI crude oil retreated by 0.30% to $57.03 per barrel and Brent decreased by 0.08% to $63.64 following the weekly API report released yesterday which showed that US crude oil stocks declined by 1.562 million barrels in the week ending November. Analysts expected a bigger fall of 2.700 million barrels