FOMC and NFP draw focus; RBA sends dovish signals; eurozone data soften
US stocks are trading near their all-time highs and the dollar index looks largely unchanged at present as the FOMC meeting is set to get under way today, with the Fed announcing its decision tomorrow. A tapering announcement is already priced in. After yesterday’s stronger-than-expected US ISM manufacturing PMI, including the pricing component, the economy is showing strong expansionary signs and that it may end the year on a high note.
The Fed is expected to deliver the taper timeline tomorrow, which is likely to result in a muted effect in the reserve currency. Significance therefore remains aimed at rhetoric around interest rate hikes from the Fed moving into 2022, as the taper timeline will be out in the open, and moreover October’s NFP payroll report could exacerbate any reaction in the greenback following the Fed’s message. The FOMC meeting and NFP payrolls report are expected to nourish dollar strength along with rising yields.
The dollar index is consolidating below the 94.00 mark, while the euro is around the $1.1600 handle and the pound in the $1.3650 price vicinity. The euro seems to be faring slightly better than the pound, as the UK continues to be hurt by the energy crisis, labour constraints, and supply risks. Furthermore, the BoE has failed to boost the pound with the prospect of a rate hike before the end of the year.
Mixed results within the eurozone area on manufacturing PMIs resulted in a slight tick lower in the final October reading to 58.3 versus the 58.5 preliminary estimate, but the industry continues to grow. Nonetheless, softer data gives the ECB doves more power to advocate for a patient approach towards tapering.
Commodity currencies and oil
Should the coronavirus cause another slowdown in China, this could weigh on the aussie, fuelling its recent weakness on the back of a dovish tone from the RBA, which conveyed doubt about the scenario of multiple rate hikes in 2022. The aussie has since dived towards the $0.7460 mark.
The RBA kept the cash rate at 0.10% and asset purchases at AUD 4 billion a week at least until mid-February 2022.
Expectations are that the economy may strengthen relatively quickly moving towards the end of the year with relaxations in restrictions, immunization improvements and increased hiring. This could feed inflation but until wage growth steers higher, the risks are likely to be muted for now. Furthermore, the RBA will not hike rates until inflation enters the 2-3% range sustainably.
The kiwi has weakened today falling to $0.7115 ahead of the country’s employment data scheduled for 21:45 GMT. The move down could be related to some weakness in commodity prices.
Persisting effects from the energy crisis have caused oil to reach its highest levels in several years in October of $85.39 per barrel. That said, WTI oil futures are currently lower at $83.50 with OPEC’s meeting on the horizon, which is expected to stick to its plan to bring back 400k barrels each month. That said, there is a lot of pollical pressure on OPEC to deliver more.
Coming up at 20:00 GMT, the RBNZ is to provide its outlook around inflation and growth in its financial stability report.
At 21:30 GMT, Australia’s AIG construction index will signal whether the construction industry is growing.
Then at 00:30 GMT, Australian monthly building approvals are due.
