FX market outlook

FX market outlook

US Dollar trims gains ahead of nonfarm payrolls; aussie buoyed by retail sales data.

The US dollar and Treasury yields were lower in Friday’s Asian session as investors were cautious ahead of the nonfarm payrolls report. The rally in oil prices fizzled out today following a boost after the OPEC deal reached on Wednesday.

The euro rose to a two-week high of $1.0689 in the Asian session, helped by a broadly weaker greenback. It is on track to end the week higher against the dollar but the main risk for the single currency will be Sunday’s referendum in Italy.

The British pound edged up to regain the $1.26 handle after dipping from Thursday’s high near $1.2700. Sterling rallied yesterday after Brexit minister David Davis said in parliament that the UK might be willing to contribute to the EU budget to retain access to single market.

The focus was on the Australian dollar which was buoyed by retail sales data out of Australia. AUDUSD hit a session high of $0.7432 immediately after the data before easing back down to test the $0.7400 level. Retail sales rose by 0.5% month-on-month for October, following a 0.6% increase in September. But today’s figures beat estimates for a 0.3% rise and should provide some comfort to the Reserve Bank of Australia and allay concerns about the risk of a more marked slowdown in the economy.

The 10-year Treasury yield was lower today after touching an 18-month high of 2.49% on Thursday. The lower yields resulted in some weakness in the US dollar.  Yesterday, US data showed factory activity accelerated in November and this lifted the dollar to 114.71 yen. The pair drifted lower in Asia today to reach 113.57 yen before steadying at 114.00. All eyes will be on the US jobs report later in the day. Forecasts are for 175,000 jobs to be added to the US economy in November. This would be an increase from the previous month’s 161,000 jobs and would be positive for the dollar.

In commodities, Brent crude slid to $53.13 a barrel from yesterday’s high of $54.50, while WTI oil fell to $50.54 a barrel in Asian trading from yesterday’s high of $51.77. Gold bounced to $1177.82 an ounce but is on track to end the week lower.