FX market outlook

FX market outlook

Oil jumps to 1-½ year high after non-OPEC producers agree to cut output.

Oil prices surged more than 4 per cent on Monday after non-OPEC producers reached an agreement to cut production by 558,000 barrels a day starting in January. The deal comes two weeks after OPEC made a pact to reduce output by 1.2 million barrels a day. These were both landmark deals that aim to ease the global oil supply glut and help boost oil prices.

Since the November 30 OPEC deal, oil prices have gained 20 percent to their highest levels in a year and a half. WTI oil rose about $3.00 to $54.47 a barrel. Brent crude jumped to $56.81 a barrel.

Data out in the Asian session showed Japan reported an increase in core machinery orders for the first time in three months

in October. Orders rose by 4.1% month-on-month, beating a 1.0% gain expected but reversing the previous month’s drop of 3.3%.

The data had little impact on the currency markets which are now turning their focus to the highly anticipated Federal Reserve meeting on Wednesday. An interest rate hike is expected and this is helping support the US dollar.

The US dollar index gained 0.5 per cent on Friday and was steady in Asia at 101.55. US Treasury yields were hovering at their highest levels in months. The broadly stronger dollar has been pressuring gold prices which traded to a low of $1,154.30 an ounce today.

Against the yen, the dollar edged up to a fresh 10-month high of 115.77 yen.

Risk appetite helped the aussie, which rose back above the key $0.7400 level.

The euro remained under pressure after last week’s dovish ECB. The single currency touched a low of $1.0524, mostly consolidating losses made after Thursday’ big drop.

Toady’s economic calendar is relatively quiet, with the Fed decision on Wednesday likely to dominate the market’s focus.