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US Dollar, Yen May Rise as Commodity FX Suffers in Risk-Off Trade

US Dollar, Yen May Rise as Commodity FX Suffers in Risk-Off Trade

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Aussie Dollar may struggle to find follow-through on CPI-inspired rally
  • British Pound down as markets rethink response to Carney commentary
  • Yen, US Dollar may rise as commodity currencies suffer in risk-off trade

The Australian Dollar outperformed in Asian trading hours after third-quarter CPI figures topped economists’ expectations. The outcome appeared to weigh against RBA rate cut expectations but traders had already discounted the probability of further near-term easing ahead of the release, suggesting upside momentum may struggle for follow-through.

The British Pound traded broadly lower as traders digested yesterday’s comments from BOE Governor Mark Carney. The UK unit sank alongside front-end bond yields before the central bank chief of due to speak in the House of Lords. It swiftly recovered after Carney said there are limits to policymakers’ willingness to look through an overshoot of the CPI target on the back of Brexit-inspired GBP weakness.

Within that context, overnight losses may reflect the realization that Carney didn’t say anything particularly earth-shaking. Most critically, he almost certainly did not mean to signal monetary stimulus reduction is anywhere on the horizon in the near term (an interpretation that investors seemingly extracted judging by Sterling’s reaction).

Looking ahead, a quiet economic calendar may put sentiment trends at the forefront. Stock index futures tracking major European and US equity benchmarks are pointing sharply lower, pointing to a risk-off mood. This may translate into losses for higher-yielding currencies including the Australian, Canadian and New Zealand Dollars while boosting anti-risk alternatives like the US Dollar and the Japanese Yen.

Asia Session

GMTCCYEVENTACTEXPPREV
23:50JPYPPI Services (YoY) (SEP)0.3%0.2%0.2%
00:15AUDRBA CIO Girn Gives Speech ---
00:30AUDCPI (QoQ) (3Q)0.7%0.5%0.4%
00:30AUDCPI (YoY) (3Q)1.3%1.1%1.0%
00:30AUDCPI Trimmed Mean (QoQ) (3Q)0.4%0.4%0.5%
00:30AUDCPI Trimmed Mean (YoY) (3Q)1.7%1.7%1.7%
00:30AUDCPI Weighted Median (QoQ) (3Q)0.3%0.4%0.5%
00:30AUDCPI Weighted Median (YoY) (3Q)1.3%1.4%1.5%
01:45CNYWestpac-MNI Consumer Sentiment (OCT)117.1-115.2
05:00JPYSmall Business Confidence (OCT) 48.3-47.7

European Session

GMTCCYEVENTEXPPREVIMPACT
06:00EURGerman Import Price Index (MoM) (SEP)0.0%-0.2%Low
06:00EURGerman Import Price Index (YoY) (SEP)-1.9%-2.6%Low
06:00EURGerman GfK Consumer Confidence (NOV)1010Low
08:30GBPBBA Loans for House Purchase (SEP)3735036997Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.07741.08281.08581.08821.09121.09361.0990
GBP/USD1.18501.20111.20991.21721.22601.23331.2494

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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