FX market outlook

FX market outlook

Posted on Tuesday, December 12 2017 at 9:28 am GMT+0000

Dollar steady ahead of UK and US data; kiwi continues rising

Here are the latest developments in global markets:

·         FOREX: The dollar was little changed against a basket of currencies ahead of a two-day meeting by the Federal Reserve that is to commence later in the day. The New Zealand dollar maintained positive momentum from yesterday, rising to its highest in a month relative to the greenback.

·         STOCKS: The Nikkei 225 finished 0.3% lower, but still remained close to its highest since early 1992; the Hang Seng was last 0.6% down following yesterday’s strong advance. Euro Stoxx 50 futures were 0.2% up at 0728 GMT.  Dow, S&P 500 and Nasdaq 100 futures were not much changed.

·         COMMODITIES: Oil was edging higher ahead of an API report on US crude stocks due later in the day (2130 GMT). WTI was 0.6% up at $58.36 a barrel and Brent traded 0.9% higher at $65.30. The latter also recorded a 2-1/2-year high earlier in the day while WTI was trading relative close to similar high levels. Gold was 0.3% up, eyeing $1245 per ounce. The precious metal yesterday touched $1240.10, its lowest since late July.

Major movers: Dollar not much changed ahead of widely anticipated rate hike; kiwi continues gaining

The dollar index was marginally higher, trading close to the 94 level, as well as around its highest in three weeks recorded on Friday. The Fed meeting that is to be completed tomorrow is widely expected to result in a quarter percentage point increase in the fed funds rate. Dollar/yen was down, though not by much, trading not far below 113.50 and its highest since mid-November.

Euro/dollar and pound/dollar were both up by 0.1%, below the 1.18 handle and around 1.3350 respectively. The European Central Bank and the Bank of England will be holding meeting later this weeks as well (Thursday) with no change in policy expected. Starting today with the release of November inflation figures, the UK will see the release of important data throughout the week.

The kiwi rallied yesterday, finishing the day 1.05% relative to the US dollar. Adrian Orr’s appointment to lead the Reserve Bank of New Zealand starting March continued to fuel long kiwi/dollar positions, pushing the pair to its highest since November 10. The pair was last trading 0.5% up, around 0.6940. Aussie/dollar rose in sympathy despite data on business confidence and home prices coming in weaker than forecasts. The pair last stood 0.3% higher at 0.7545.

Day ahead: US & UK deliver PPI & CPI data; Fed policy meeting begins

At 0930 GMT the British Office for National Statistics will deliver data on consumer prices. Forecasts are for the headline CPI – the measure the BoE’s target of 2% is compared to – to stand flat at a more than five-year high of 3.0% y/y in November.  The BoE governor, Mark Carney, recently stressed that further rate hikes might be needed the next few years to bring inflation back to the central bank’s target. It should be noted that if the indicator breaks above expectations, then Carney would have to write a letter to the Chancellor of the Exchequer Philip Hammond explaining the reasons behind the outcome. Month-on-month, CPI is expected to rise by 0.2%. Other inflationary measures, including producer and retail prices are expected to rise on a yearly basis in November.

Next, at 1000 GMT the ZEW institute will publish November’s readings on German economic sentiment, with analysts projecting the outlook for the next six months to deteriorate, driving the index down by 0.7 points to 18.0. However, this would still be among the highest readings recorded in two-years.

In the US, PPI figures for the month of November are expected to inch up by 0.1 percentage points to 2.9% y/y, picking up to a fresh two-year high, whereas the monthly PPI stats are anticipated to reflect a slowdown in the pace of growth, standing at 0.3% m/m growth.

Regarding central bank meetings, the FOMC members will gather to decide on interest rates later today, with the decision expected to be announced on Wednesday at 1900 GMT. Despite a third-rate hike being priced in by the markets, investors will scrutinize the monetary policy statement following the rate announcement and will keep a close eye on the Fed chair Janet Yellen’s news conference at 1930 GMT for clues on the path of future rate hikes.

In energy markets, the American Petroleum Institute will report inventory levels on US crude oil, gasoline and distillate stocks for the week ending December 8 at 2130 GMT.