FX market outlook

FX market outlook

yen makes comeback following weak Chinese data.

The yen managed to recover its US session losses versus the greenback as a bout of risk aversion hit the markets following weak Chinese trade numbers.

The yen had lost ground earlier as the dollar climbed to around 104.65 following the release of Fed minutes that showed that the arguments for and against a rate hike in September had been finely balanced.  In the end, the argument that won the day and interest rates were left unchanged was that there was probably still some room for improvement in the labor market and inflation was not such a serious threat.  Still the debate showed that a rate increase in the near-term was highly likely-provided that the economy performs as expected.  The yen was trading at 103.80 against the dollar at the time of writing.

The euro managed to barely hold on to the 1.10 level versus the US dollar as the market seemed to favor greenback appreciation across the board.  The pair was last at 1.1013.

The session’s key economic numbers were trade numbers out of China for September. While August’s figures had been positive, the latest numbers were disappointing for two reasons. Firstly, exports fell much more than expected – by -10% (year-on-year) versus of a drop of only -3% anticipated.  This was an indication of weak global demand for Chinese goods. Secondly, imports fell by -1.9% instead of rising 1% as expected.  This in turn was a signal that Chinese domestic demand for foreign goods was also weak.  Chinese trade figures have been volatile in the past so one should not pay too much attention to one month’s data. Still, the magnitude of the decline in exports unnerved some although the year-on-year decline in exports in dollar terms was also partly due to the depreciation of the yuan.

Due to the disappointing Chinese data as well as the resulting risk aversion, the Australian dollar declined to as low as 0.7507 against the US dollar.  It was last at 0.7516.

Looking ahead, there was little in the way of major data releases with initial jobless claims out of the US likely to attract some attention.  In addition, because of the US holiday on Monday, energy inventory data will be released today instead of Wednesday which is their usual release day.  In a reversal for oil, the US futures contract fell below $50 a barrel.