Asian FX Outlook: Will the RBA turn more dovish?

Ivan Delgado Independent Analyst

Main market focus

US President Trump pays a visit to Seoul. Financial markets will be closely watching the President's rhetoric towards North Korea, as it could further inflame tensions with North Korean leader Kim Jong Un.

The US Dollar ends Monday as the weakest currency amid a slide in US Treasury yields, with 10y-2y yield curve also flattening. Added USD pressure derived from a strong appreciation in both gold and oil.

The RBA is set to release its latest monetary policy decision today. Overall, the risk appears to be skewed to the downside on weaker household consumption, reflected in the latest Aus retail sales data; inflation figures have also lagged behind, which when combined with a cooling of the housing market in Sydney, suggests the RBA has no justification to adjust rates for the foreseeable future.

The appearance of ECB President Draghi, due to deliver opening remarks at the ECB Forum on Banking Supervision, in Frankfurt, will be the main event during European hours.

A make-or-break week for Trump's tax reform bill as the US House of Representatives begins a frantic week, in which lobbyists and lawmakers will revise the bill, to ultimately make the necessary amendment and vote on it.

Market participants should monitor Oil prices, at the highest since mid-2015, after a robust 3% rise following graft probes against Saudi elites, which has resulted in higher uncertainty for the interest of foreign investment.

Major forex market movers

EUR/USD: It was a low key day for the pair, with volatility suppressed to a mere 40-pip range. While Friday's bearish outside day post US NFP hints at risks for further downside pressure, the trajectory in the 10y DE vs US yield spread/curve does not seem to justify lower prices at this stage.

GBP/USD: The rise in the Pound, the strongest currency on Monday, has eased the bearish outlook for the week. However, further climbs from current levels will prove a tougher challenge as the pair meets the 200-hourly MA and 50% fibo retrac from the BoE-led sell-off. While the yield curve between UK vs US remains supportive of higher prices, the 10y UK vs US yield spread remains fairly subdued, likely to help cap further gains.

USD/JPY: A major bearish outside day at a critical level of resistance places immediate risks back to the downside. The setback for bulls occurs after the trajectory of both US vs JP yield spreads/curve suggested that further rises in the pair were far from justified. The area of support at 113.00 could be exposed in coming days now.

AUD/USD: The Aussie saw a recovery towards the 0.77 round number, where the 200-day MA happens to intersect as well. The RBA rate statement will be the main mover today, with risks skewed to the downside as per the latest developments in the Australian economy, with a disappointment in the most recent retail sales and inflation figures

What happened?

US Oct Employment trends came at 135.6, 132.9 prev

CA Oct Ivey PMI, 63.5, 68.6 prev

CA Oct Ivey PMI SA, 63.8, 59.6 prev

Economic calendar

GMT	Event	Actual	Consensus	Previous
Monday, Nov 06
07:00	CZK Industrial Production (YoY)	4.4%		5.8%
07:00	CZK Retail Sales (YoY)	6.2%		4.8%
07:30	SEK Industrial Production (MoM)	2.2%		-1.6% Revised from -1.7%
07:30	SEK Industrial Production (YoY)	4.5%		7.5% Revised from 7.3%
08:00	BRL Fipe's IPC Inflation	0.32%		0.02%
08:15	EUR Markit Services PMI	54.6	55.5	56.7
08:15	CHF Consumer Price Index (YoY)	0.7%	0.8%	0.7%
08:15	CHF Consumer Price Index (MoM)	0.1%	0.2%	0.2%
08:30	SEK New Orders Manufacturing (YoY)	11.2%		6.1% Revised from 6.3%
08:45	EUR Markit Services PMI	52.1	53.0	53.2
08:50	EUR Markit Services PMI	57.3	57.4	57.4
08:50	EUR Markit PMI Composite	57.4	57.5	57.5
08:55	EUR Markit PMI Composite	56.6	56.9	56.9
08:55	EUR Markit Services PMI	54.7	55.2	55.2
09:00	EUR Markit PMI Composite	56.0	55.9	55.9
09:00	EUR Markit Services PMI	55.0	54.9	54.9
09:30	EUR Sentix Investor Confidence	34.0	30.8	29.7
10:00	EUR Producer Price Index (MoM)	0.6%	0.4%	0.3%
10:00	EUR Producer Price Index (YoY)	2.9%	2.8%	2.5%
11:30	CLP IMACEC	1.3%		2.4%
n/a	GBP UK Prime Minister Theresa May speech
n/a	EUR Eurogroup meeting
15:00	CAD Ivey Purchasing Managers Index s.a	63.8	60.2	59.6
15:00	CAD Ivey Purchasing Managers Index	63.5		68.6
16:30	USD 6-Month Bill Auction	1.30%		1.26%
16:30	USD 3-Month Bill Auction	1.185%		1.130%
17:00	USD Fed's William Dudley speech
17:00	BRL Interest Rate Decision			7.5%
18:00	USD Loan Officer Survey
22:30	AUD AiG Performance of Construction Index	53.2		54.7
Tuesday, Nov 07
00:00	JPY Labor Cash Earnings (YoY)			0.9%
00:01	GBP BRC Like-For-Like Retail Sales (YoY)			1.9%
00:01	EUR Consumer Confidence			105.8
n/a	CNY Foreign Exchange Reserves (MoM)			¥3.109T
03:30	AUD RBA Interest Rate Decision		1.5%	1.5%
03:30	AUD RBA Rate Statement
05:30	EUR Consumer Price Index n.s.a (YoY)			1.5%
06:00	ZAR Net $Gold & Forex Reserve			$42.651B
06:00	ZAR Gross $Gold & Forex Reserve			$49.384B
n/a	NOK Manufacturing Output			-5.7%
07:00	EUR Industrial Production n.s.a. w.d.a. (YoY)			4.7%
07:00	EUR Industrial Production s.a. (MoM)		-0.8%	2.6%
07:00	DKK Industrial Production (MoM)			4%
07:00	EUR Trade Balance			€-0.15B
07:00	EUR Wholesale Prices n.s.a (MoM)			1.2%
07:00	EUR Wholesale Prices n.s.a (YoY)			5.2%
07:00	HUF Retail Sales (YoY)			4.6%
07:00	CHF Foreign Currency Reserves			724B
07:45	EUR Individual Investment (Current Year)			7%
07:45	EUR Budget			€-93B
08:30	GBP Halifax House Prices (MoM)			0.8%
08:30	GBP Halifax House Prices (3m/YoY)			4%
09:00	EUR Retail Sales n.s.a (YoY)		0.6%	-0.5%
09:00	EUR Retail Sales s.a. (MoM)			-0.3%
09:00	SGD Foreign Reserves (MoM)			275.4B
10:00	HUF Budget Balance			-256.4B
10:00	EUR Retail Sales (MoM)		0.6%	-0.5%
10:00	EUR Retail Sales (YoY)		3.1%	1.2%
12:00	RON Interest rate decision			1.75%
12:30	CLP Trade Balance			$714M

Author

Ivan Delgado

Independent Analyst

Established in the Asian continent since 2009, Ivan studied a degree in Business at the University Pompeu Fabra (Barcelona), while also earning a postgraduate degree in Business Administration.

EUR/USD faces next resistance near 1.1930

EUR/USD continues to build on its recovery in the latter part of Wednesday’s session, with upside momentum accelerating as the pair retargets the key 1.1900 barrier amid a further loss of traction in the US Dollar. Attention now shifts squarely to the US data docket, with labour market figures and the always influential CPI releases due on Thursday and Friday, respectively.

GBP/USD sticks to the bullish tone near 1.3660

GBP/USD maintains its solid performance on Wednesday, hovering around the 1.3660 zone as the Greenback surrenders its post-NFP bounce. Cable, in the meantime, should now shift its attention to key UK data due on Thursday, including preliminary GDP gauges.

Gold holds on to higher ground ahead of the next catalyst

Gold keeps the bid tone well in place on Wednesday, retargeting the $5,100 zone per troy ounce on the back of modest losses in the US Dollar and despite firm US Treasury yields across the curve. Moving forward, the yellow metal’s next test will come from the release of US CPI figures on Friday.