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Forex Flash: US dollar vulnerable, but only in the short-term - BTMU

FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that USD, in DXY terms, is 1.7% lower over the last week in part due to market participants pushing back the timing of the Federal Reserve tapering back its QE3 program due to evidence of slowing economic activity in the US.

In that sense, he feels that today’s FOMC statement will be important. However, news from Asia today should serve to remind market participants that based on relative fundamentals and monetary policy, the potential for further notable dollar losses is pretty limited. He adds that the most eye-catching piece of news from Asia was the PMI report from Australia which revealed another drop in the index from 44.4 in March to 36.7 in April, the lowest level since April 2009, close to the worst point of the immediate aftermath of the collapse of Lehman Brothers.

He writes, “The 7.7-point monthly drop was also the largest since July 2012 when the crisis in Spain and Italy reached its worst point last year. It is clear given the more benign international market conditions now relative to those occasions that domestic conditions are now becoming the key driver of negative sentiment in Australia. The spokesman for the report stated that the Australian dollar, rising unit labour costs and high energy prices were all undermining competitiveness. The conditions in Asia, albeit relatively stable, don’t help Australia’s cause.”

Meanwhile, he adds that the China PMI manufacturing index fell from 50.9 to 50.6 in April while export data from South Korea revealed a much weaker than expected 0.4% annual gain in exports in April. Exports from South Korea tend to act as a good gauge of overall demand in Asia. Inflation from South Korea was also lower than expected, which is lifting expectations once again that the Bank of Korea will ease its monetary stance further. And after the Australia data, the RBA is likely to be easing again also. He finishes by commenting, “We are surprised AUD/USD isn’t lower, but with the FOMC this evening and much of Asia closed today, appetite for trading may be more constrained than usual.”

Forex Flash: FOMC minutes to be more interesting than today’s statement – TD Securities

TD Securities analysts believe that the minutes of today’s FOMC meeting may be more interesting than the actual outcome, “as the minutes will show that the weaker run of US data has shifted the debate away from the exit of QE”. Today’s statement should also give signs of what is to come: “We expect the assessment of the economic and inflation outlook to be downgraded, reflecting a shifting emphasis relative to March when the prospect of a labor market recovery was beginning to tilt the balance towards tapering. This time around the rising uncertainty about the impact of fiscal austerity on growth and further moderation in core inflationary pressures will likely shift the balance back to an easing bias. And even though we do not expect the dial to go all the way to increasing the size of purchases, the risk of this has increased, albeit one that remains quite low”, wrote analyst Alvin Pontoh, also eyeing the ADP employment (looking for a reading of 160K, essentially on top of the actual outcome for March (158K), but slightly higher than consensus of 150K) and US ISM manufacturing PMI (slight downside risk and are looking for an outcome of 50.4 (mkt 50.7), which would leave the ISM at its lowest level since November 2012).
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Forex EUR/AUD above 1.2700 after Australia data

The EUR/AUD first fell below the 1.2700 to find a low at 1.2682 after the release of Australian data. Then, retracement and a move to 1.2726 high followed. The cross is trading below 1.2720.
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