FX market outlook

FX market outlook

Posted on Tuesday, March 7 2017 at 9:39 am GMT+0000

Aussie rises after RBA; greenback steady as markets eye risk events.


It was a relatively quiet Asian session with most currencies trading in a range as investors were cautious ahead of upcoming risk events such as this week’s US jobs report and the March 14-15 Federal Reserve policy meeting, while political uncertainties in Europe also lead to a lackluster session.

The Australian dollar was the best performing major currency after the Reserve Bank of Australia held interest rates steady and maintained and optimistic view on the economy. The main cash rate was left at a record low 1.50% as expected, for a sixth consecutive month.

RBA Governor Philip Lowe said in a statement that economic conditions were in line with the Bank’s target on inflation and growth. Markets interpreted that rates will stay on hold for a longer period until inflation rises to the target and that a rate cut is off the table for now due to rising household debt.

Aussie / dollar started the session below 0.7600 and after a brief dip on the RBA announcement, it rallied again to reach a session high of 0.7632.

In other currencies, the euro had a quiet Asian session after slipping 0.4% against the dollar on Monday. It traded between 1.0572 and 1.0592. The single currency has come under pressure on French election concerns. On Monday, former French Prime Minister Alain Juppe said he won’t enter the race for the presidency. This caused concern in the markets since it gives the possibility of anti-euro candidate Marine Le Pen going through to the second round of voting. An immediate risk event for the euro will be Thursday’s ECB meeting.

Sterling remained weak against the dollar and struggled below 1.2250 in Asia. Brexit concerns continue to weigh, while there is some caution ahead of the UK Budget on Wednesday.

The dollar was little changed against the yen, holding in a range between 113.82 and 114.06. Investors are likely waiting on the sidelines for the latest non-farm payrolls report due on Friday, as the data would play a large role in the decision the FOMC will be taking at the upcoming policy meeting. The March meeting will be important because not only will it about the rate hike,  but also it is hoped that the Fed will signal whether it is prepared to hike rates on a more regular basis. A move by the Fed at this meeting will indicate that it is very confident about the outlook of the US economy.

In commodities, gold was steady and consolidated the previous day’s losses at around $1,225 an ounce. WTI oil was steady around $53 a barrel, with gains capped due to concerns about a supply glut, amid fears that growing US production levels will offset the OPEC agreement cuts.

Looking ahead to the rest of the day, Eurozone revised GDP data and the US trade balance are due to be released.