Dollar Gets Stronger

Market Drivers September 17, 2019
GE ZEW slightly better
RBA hints at more easing
Nikkei 0.06% Dax -0.14%
UST 10Y 1.82%
Oil $62/bbl
Gold $1497/oz
BTCUSD $10,175

Europe and Asia:
EUR GE ZEW -22 vs. -33

North America:
CAD Manufacturing Sales 8:30

It was a quiet night in FX trade with a mishmash of small idiosyncratic stories driving majors today but the unifying theme in the market was the continued strength of the dollar ahead of the Fed meeting tomorrow.

In Australia, the RBA minutes suggested that the central bank was open to further easing as policymakers remained concerned about the global slowdown in trade. Given the very weak Chinese manufacturing data over the weekend, those worries may be well-founded. Tomorrow the market will get a look at the AU employment data which up to now has been surprisingly robust given the marked slowdown in activity in China, but if the number misses the odds of another RBA cut will rise materially. The Aussie was one of the weakest pairs of the night slipping to a low of .6830 and could drop through the big figure by tomorrow if the Fed proves to be less dovish than the market expects.

The pound was also slightly weaker on the day dropping through the 1.2400 figure at the start of London trade as yesterday’s Brexit talks in Brussels turned into a political farce with Mr. Johnson refusing to come to the press conference after the talks went nowhere. With Parliament suspended the next big event for sterling will be the UK Supreme Court ruling on the constitutionality of that suspension. If the UK Supreme Court reaffirms the Scottish court ruling the pressure on PM Johnson to abandon the no-deal Brexit will ratchet higher and should prove to be a boost to the pound. In the meantime, it’s facing some profit-taking.

Elsewhere there is no major data in North America today but the theme of a strong dollar persists for the second day in a row as both USDJPY and USDCHF continue to be bid with the later once again slowly making its way towards parity. Part of the reason may be due to easing of risk-off flows and the 30bp rally in US 10Y from its lows last month, but there is also talk of dollar shortage in the interbank overnight lending market which may also be contributing to the move. Although the market is expected to be quiet ahead of the FOMC rate decision tomorrow the uptrend in the dollar could lift USDJPY through 108.50 and USDCHF through .9950 before the end of the day.

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