FX market outlook

FX market outlook

Dollar firm above 105 yen, bond yields rise .

Bonds extended their sell-off in Asia today as markets made an astonishing comeback in the aftermath of Trump’s victory. The bold changes that President-elect Donald Trump touted in his victory speech on Wednesday led to a huge turnaround in stock and currency markets. The dollar surged as bond prices fell and yields jumped.

The dollar held onto gains in Asian trading today as the US 10-year treasury yield hovered around 2%, its highest since January. Increasing odds of a Fed rate hike in December are helping support the greenback, while Trump’s plan for more fiscal spending, tax cuts and higher inflation expectations pushed yields up.

The fear of the uncertainty of a Trump administration appeared to have eased a little as an all-Republican House, Senate and White House would mean a break of the gridlock in Washington which occurred during the Obama administration when different parties held the legislative and executive branches.

The dollar recovered from a trough of 101.18 yen touched yesterday to reach a high of 105.94 in Asia today, its highest in over three months.

The euro moved slightly off the lows of $1.0906 reached after yesterday’s knee-jerk reaction to Trump’s win, when it tumbled from a high of $1.1300.
Gold remains below the key $1300 level as demand for safe havens eased. The metal traded around $1287 in the Asian session.

The Mexican peso remains the biggest loser from the outcome of the US election and trades not far from record lows. USDMXN hit a high of 20.76 pesos yesterday but eased down to 19.80 pesos in Asian trading.

In other news, the Reserve Bank of New Zealand cut rates to record lows of 1.75%. The kiwi initially jumped to $0.7360 as the RBNZ was not-so dovish in its statement and indicated that further easing was less likely.

In terms of economic data, Japanese September machine orders fell 3.3% month-on-month versus 0.8% expected. The Bank of Japan policy meeting minutes out today for the November 1 meeting said nothing new but reiterated the BoJ’s 2% inflation target.

Coming up later today, focus will be on US jobless claims and a speech by FOMC member James Bullard.