FX market outlook

FX market outlook

Posted on Tuesday, February 21 2017 at 8:39 am GMT+0000

Dollar strength weighs on yen.


The US dollar strengthened during the Asian session on Tuesday, helped by higher US Treasury yields. The yen weakened despite upbeat manufacturing PMI data out of Japan today.

The aussie slid against the greenback to move off an early session high of $0.7690. The Reserve Bank of Australia published minutes of its latest policy meeting. The minutes had an optimistic outlook regarding the prospects of Australia’s economic growth. This view diminishes the scope for rate cuts in the near future. Despite this, the aussie fell versus the US dollar but hit a four-month high against its New Zealand counterpart at $1.0721.

Other data released during the Asian session came from Japan which showed manufacturing activity expanded in January at its fastest pace since early 2014. The flash reading came in at 53.5 versus 52.1 expected and higher than the previous 52.7 reading.  A broadly stronger dollar did not allow the yen to gain, despite upbeat data.

After US markets were closed on Monday for President’s Day, the greenback played catch up today and the dollar index rose 0.3 percent to 101.21. Dollar/yen was stronger and gained to 113.70.

The main risk event for the dollar will be the FOMC minutes due on Wednesday. Investors will look to see if the minutes will indicate how positive FOMC members are about rate hikes. Last week, Philadelphia Fed President Patrick Harker gave his view that a March rate hike was not off the table.

The euro remained under pressure as investors do not want to take big risks ahead of the French elections. The single currency slid to its lowest level in a week against the dollar to touch $1.0576 in Asia.

Gold fell due to the stronger dollar, to trade at $1232.36 an ounce. WTI oil pivoted around the $54 a barrel level.

Looking ahead to the rest of the day, PMI Data will be released for the Eurozone and the US. Fed speakers will attract attention, with Harker and Kashkari scheduled to speak later in the day. Meanwhile, RBA Governor Lowe’s speech will be eyed too.