USD: USD sentiment on hold awaiting developments on tax plan and Fed chair
- Currency market sentiment once again largely on hold overnight as markets await details of the House tax plan. News reports also suggest that President Trump is expected to nominate Fed Governor Jerome Powell for the Fed chair. Citi analysts point out that whether Powell, Taylor, Warsh or Yellen is nominated, the Fed is still likely to hike three times next year if there is a sustained pick up in US core inflation.
EUR & GBP: Near term focus on the BoE statement to be released tonight, the medium term outlook sensitive to Brexit developments
- Press reports suggest that Germany wants a £44bn Brexit divorce payment in order to trigger trade talks and is prepared to drop demands that UK covers the cost of relocating agencies as well as the future liabilities on bad European Central Bank loans. The UK is reportedly offering to pay a Brexit divorce bill of £20bn.
- The widely expected 25bp rate hike by the Bank of England (BoE) tonight and the accompanying statement by the central bank will drive near term sentiment for the sterling. In particular, markets would look for clues whether the hike is a one-off increase or whether there may be more rate hikes to come. That said, the medium term outlook for the sterling remains sensitive to Brexit developments.
Commodity Bloc: NZD better placed to outperform AUD & CAD
- Month end buying earlier this week lifted AUDUSD to a high of 0.7688 but fails to get past the key 0.7700 hurdle on fears that the Reserve Bank of Australia will be dovish at next week’s meeting. Market attention is also focused on the Australian retail sales numbers that will be reported this Friday.
- NZDUSD's rebound earlier in the week following strong jobs data, seems to suggest that the initial concerns over the potential change to the Reserve Bank of New Zealand's mandate as well new housing measures banning foreign purchases under the new Ardern government appear largely discounted.
- Canada's manufacturing Purchasing Manager's Index slid from 55.0 to 54.3 in October. Growth in the Canadian manufacturing sector is showing signs of easing as the gains in both output and new orders slow. This follows the weaker GDP reading for Canada in August. A relatively dovish tone by Bank of Canada governor Poloz earlier this week leaves CAD vulnerable against its commodity peers in the short term.
SGD: MAS likely to tighten policy “modestly” in April 2018
- Citi analysts expect the Monetary Authority of Singapore (MAS) to steepen the slope moderately at the April 2018 meeting as policy settings turn “inappropriately” accommodative in 2018. In line with this bias, MAS has tempered but not completely dropped the explicit dovish forward guidance of the last two meetings.
This is an extract from the Daily Currency Update, dated 2nd November 2017. Please approach a Citigold Relationship Manager if you would like more information.