FX market outlook

The dollar index opened in Asia marginally higher than yesterday’s close after hawkish comments from FOMC member Rob Kaplan helped underpin the greenback.

Speaking at an event in Oregon yesterday, Kaplan reiterated his view that a rate hike should come sooner rather than later. This helped the dollar / yen move off an 18-day low that was below 112-yen, to rise to a high of 112.83. But the dollar reversed throughout today’s Asian session as investors shifted their focus to a speech by US President Donald Trump in Congress later in the day. The dollar fell to a session low of 112.31.

Data released during the Asian session came from Japan and Australia. The aussie rose versus its US counterpart to reach 0.7690 after data showed that Australia posted its narrowest current account deficit since 2001 during the December quarter. This raised hopes for better GDP figures that are due on Wednesday.

There were mixed data reports out of Japan today, making the yen volatile after the releases. Industrial production missed forecasts but retail sales beat expectations. Japan’s IP fell by 0.8% month-on-month in January despite expectations for a 0.3% increase. Retail sales rose by 1.0% year-on-year in January, beating expectations of a 0.9% increase.

In other currencies, the euro edged up against the dollar to a high of 1.0602. The pound continued to struggle after coming under pressure on Brexit concerns and on news of a possible Scottish referendum. Cable traded around 1.2430 in today’s Asian session.

In commodities, WTI oil remained above the $54 a barrel, being supported by reports of high compliance with OPEC’s production cut agreement. Gold retreated from a 3 1/2-month high of $1263.74 hit yesterday. Profit-taking and caution ahead of Trump’s speech today pushed gold down to trade around $1252.

Markets will await more details on Trump’s tax reform and infrastructure spending in his first major policy address to Congress. This event will be the highlight of the day but ahead of this, investors will watch out for the second reading of US GDP for the fourth quarter as well as a report on US consumer confidence from the Conference Board.