FX market outlook

FX market outlook

Posted on Thursday, November 16 2017 at 9:25 am GMT+0000

Dollar stuck in a tax trap; aussie gains little on employment data

Weakened prospects on the US tax reforms continued restricting the dollar’s gains in Asia despite Wednesday’s encouraging data cementing a third-rate hike this year, while a mixed employment report in Australia did little to support the Aussie.

On Wednesday, two Senate Republicans expressed their opposition to the tax plan, claiming that they would not support a plan which favours corporations over other enterprises including small companies. Particularly the new version produced on Tuesday aims to activate permanent tax cuts for corporations and only temporary tax cuts for individuals and small businesses, while embodying a key repealing component of Obamacare in the bill. This brought a new headache to Republicans as they cannot afford to lose more than two votes given that they hold a narrow majority of 52-48 in the Senate.

Markets were also worried about a flattening yield curve, with the gap between the 2-year and 10-year US Treasury yield breaking a fresh 2017 low. This could be a sign of a future economic downturn.

The dollar index remained below the 94 key-level, trading flat at 93.84, although investors cemented their hopes on further rate hikes in the upcoming year after US retail sales in October beat forecasts and CPI matched expectations. Dollar/yen rose by 0.34% to 113.24 and dollar-denominated gold retreated by 0.20% to $1,275.80 per ounce.

In Australia, the Bureau of Statistics published new employment figures, showing that 3,700 new jobs were created in October compared to 17,500 anticipated and 26,600 tracked in September (upwardly revised from 19,800). This marked a 13-month consecutive increase and the longest row of gains since 1990. Full-time workers increased by 24,300, far above the previous mark of 9,300, driving the annual change up to 298,000, while the unemployment rate declined moderately by 0.1 percentage points to 5.4%, making a fresh four-year high.

The aussie, however, posted limited gains during the session as a disappointing report on wage growth released early on Wednesday hampered chances of a rate hike anytime soon. The aussie touched a session high of $0.7608 in the wake of the data but pulled back to 0.7589 afterwards.

The kiwi extended yesterday’s losses, falling by 0.32% to $0.6853 after the ANZ survey indicated that consumers confidence index declined by 2.6 points to 123.7 in November amid a slowing housing market and concerns on political developments.

Euro/dollar slipped by 0.11% to 1.1777 after touching a one-month high of 1.1860 on Wednesday.

Pound/dollar moved sideways around 1.3142 ahead of retail sales figures out of the UK.

Turning to energy markets, oil prices rose softly, with the WTI crude edging up by 0.14% to $55.41 per barrel and Brent climbing by 0.36% to $62.09.

Next on the day, investors will mainly keep a close eye on CPI data out of the Eurozone, initial jobless claims out of the US and focus on comments given by the BOE Governor, Mark Carney.