FX market outlook

FX market outlook

Aussie falls after RBA cautions on slower growth; euro consolidates gains.

The Australian dollar was in focus in today’s Asian session as the Reserve Bank of Australia held its monthly policy meeting. The RBA decided to leave the cash rate unchanged at 1.50% as expected and its statement cautioned about a slowdown in growth in the near term. All eyes will be on Wednesday’s third quarter GDP report, which many economists forecast will show the Australian economy contracted.

The aussie fell after the RBA announcement but the currency had already started to weaken earlier in the session following the release of current account data which showed a deficit of A$11.4 billion in the September quarter. However, the deficit narrowed more than expected. The Australian dollar fell to a session low of $0.7440 after having hit a high of $0.7482.

The euro consolidated gains made after a strong recovery following a drop to a 21-month low against the dollar on Monday in the wake of the “no” vote in the Italian referendum on constitutional change. Italy’s Prime Minister Matteo Renzi announced he would resign after he was defeated in Sunday’s referendum but President Sergio Mattarella requested Renzi to delay his resignation until the budget was passed. This could be achieved as soon as later this week.

The euro shrugged off the result of a “no” vote and advanced to a 3-week high of $1.0795 on Monday but eased lower in Asia today to $1.0739. Against the Japanese currency, the euro climbed to a high of 123.18 yen on Monday before slipping back into the 122 yen handle today. The next risk event for the euro will be Thursday’sECB policy meeting.

Lower US Treasury yields weighed on the greenback which fell from Monday’s high of 114.76 yen to a low of 113.14 before the end of the day. The US dollar bounced slightly in Asia today to reach a session high of 114.14 yen. Strong ISM non-manufacturing PMI data yesterday helped boost the dollar. The index jumped to 57.2 in November from 54.8 in September.

Oil prices slipped today after surging higher yesterday, extending the post-OPEC rally. WTI hit a high of $52.38 a barrel on Monday, the highest since July 2015 and slid to $51.30 in Asian trading today. Brent crude climbed to $55.30 a barrel yesterday and fell to $54.50 today.

Looking ahead to the rest of the day, Eurozone revised GDP will be released for the third quarter. Out of the US, trade balance and factory orders data are due.