Market Drivers November 7, 2017
RBA keeps rates on hold
Dollar higher across the board
Nikkei 1.73% Dax 0.07%
Europe and Asia:
AUD RBA on hold
EUR Retail Sales 3.7% vs. 2.7%
USD Economic Optimism 10:00
The dollar was stronger across the board in Asian and early European trade with EURUSD hitting lows not seen since July of this year.
EURUSD tumbled to a low of 1.1553 after breaking key support at the 1.1580 level and triggering stops. There was no major economic or political news to drive trade, but general pro-dollar flows pushed the buck higher against all its major trading partners today as US yields remained steady while European and UK yields declined slightly.
We remain in a state of equilibrium in FX but the currency markets are slowly starting to appreciate the relative hawkishness of US monetary policy. While the Fed remains cautious in its outlook, it nevertheless appears committed to a tightening path while other G-7 central banks are far more hesitant in their policy actions.
Elsewhere, the RBA kept rates on hold as expected but Aussie jumped on the release of the statement as the central bank did not downgrade its GDP forecast below 3% level. AUDUSD took out the .7700 barrier but then quickly fell back and drifted towards .7650 as the night wore on and pro-dollar flows dominated trade. This is the 15th consecutive month that AU rates have remained steady and analysts do not anticipate any change in policy for the foreseeable future suggesting that any upside gains for Aussie will be limited especially if US yields begin to rise in 2018.
With only a smattering of second tier data on the docket today, price action in FX could be muted, unless US yields continue to firm up which could extend the dollar rally to below EURUSD 1.1550 and USDJPY 114.50 as the day proceeds.