FX market outlook

FX market outlook

Oil prices, dollar remain weak as focus is on OPEC meeting.

Oil prices are in the spotlight this week ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna which takes place on November 30. Growing concerns that producers will not be able to reach an agreement on production cuts this week has led to some risk aversion in the markets today.

Fading hopes of an agreement by OPEC to trim oil output levels has led to flows into safe havens today, helping support the yen which was also one of the biggest beneficiaries of the broadly weaker dollar.

WTI oil traded near $46 a barrel through the Asian session, consolidating after a big drop on Fridayto $45.12.

The dollar dipped further against the yen in early Asian trading as US Treasury yields pulled away from near 14-year highs reached last week. Inflation expectations rose after Donald Trump was elected US president and he promised to spend heavily on infrastructure. Increasing yields on US Treasuries sparked inflows into dollars, thereby causing a strong rally in the greenback, which has lost some of its steam now.

The 10-year Treasury note yield declined further today to 2.32% after hitting a 16-month high of 2.41% on Thursday.

The dollar dipped to an Asian session low of 111.35 yen today. Last week, the greenback hit an 8-month high of 113.89 yen.

US employment data due this week will be in focus and give some insight as to whether the Federal Reserve will hike rates in December. The minutes from the Fed’s November meeting gave a strong indication that a December rate hike was on the table.

The Australian dollar benefitted from a weaker US dollar and extended Friday’s gains to rise to $0.7483 by late Asian session trading.

The euro rose back above the key $1.0600 level to reach a session high of $1.0684. Last week, the single currency reached an 8-month low of $1.0579. The ECB meeting next week will be in focus as investors could find out about any potential QE extension. In the meantime, Eurozone sentiment data are due today and markets will closely watch Italy’s data. Investors will look into November’s report on consumer and business sentiment for Italy ahead of next week’s referendum on constitutional reform which could have repercussions on the EU.