Daily Forex Commentary

05 January 2017 - Dollar weakens on release of FOMC minutes

By Joel Holmes

New Zealand Dollar:

 

  

The Kiwi traded off intraday lows yesterday of 68.90 US Cents as the local market continued to digest the biggest drop in dairy prices for three months. We saw a 0.6% movement higher in overnight trading as FOMC December minutes were released to the public with uncertainty in the amount of interest rate rises for 2017. The Federal Reserve remarked hikes would be “Gradual” sparking sell offs from 14 year highs on the US Dollar index. The Kiwi has continued its rally where we currently open at highs of 0.6965 against the Greenback.

 

We expect a range today of 0.6920 – 0.7010

 

Australian Dollar:

The Australian Dollar gathered momentum against the USD yesterday moving from levels of 72c and touching a high of 0.7282 just before the end of the New York session. The biggest jump was during the European session as strong manufacturing data indicated signs of recovery within the global economy. Over in the US, the minutes of the Fed’s meeting didn’t provide much more than what we had learned from their statement last month however, it was noted that Fed officials focused on the impact of potential fiscal stimulus and saw more upside risk to economic growth forecasts under the new Trump administration. This morning sees the release of Australia’s AIG index which reports on the level of business conditions in Australia, with previous months readings reporting industry expansions.

 

We expect a range today of 0.7210 – 0.7310

 

Great British Pound:

The Great British Pound recovered some ground on Wednesday, but overall remains weak against the greenback. The Sterling reached an overnight high of 1.2352 following the release of Construction PMI which improved to 54.2 for the month of December, up from 52.8 in November, surpassing the estimate for the December release of 52.6 and climbing to an 11-month high. We now expect support to hold on moves approaching 1.2240 while any upward push will likely meet resistance around 1.2380. The pair is currently trading at 1.2318. Attentions now turn to Thursday’s Services PMI data release. The forecast for the December release is 54.8 slightly down from the previous month of 55.2 in November.

 

We expect a range today of 1.7625 – 1.7750

 

Majors:

The U.S Dollar’s advance stalled through trade on Wednesday as investors responded to an uptick in Euro Zone price pressures and the FOMC’s December meeting minutes. Having touched peaks not seen since 2002 the Greenback met selling pressure and profit taking as the Federal Reserve minutes revealed policy makers, while expecting upside growth through fiscal stimulus, were wary of a heightened USD dragging economic progress. Investors are still seeking fresh clues as to the timing and extent of additional rate hikes through 2017 and yesterday’s minutes did little to assuage market curiosities. CME’s Fed watch tool shows the market pricing in two rate hikes with a 3rd policy adjustment expected by near on 50% of analysts. The USD fell half a percent against the Yen to 117.23 while the Euro bounced off 14 year lows moving back through 1.0450 to touch intraday highs at 1.0496. An unexpected uptick in CPI and Core CPI estimates drove the 19 nation combined unit higher, pushing German Bund yields upward and narrowing the yield advantage enjoyed by US Treasuries. Having met resistance on approach to 1.05 direction today will stem from a raft of U.S macroeconomic indicators headlined by Services data and preliminary Non-farm payroll numbers.

 

Data Releases

AUD: 

AIG Services Index.

NZD: No data today.

JPY: 

 Monetary Base y/y, 10-y Bond Auction.

GBP: 

Services PMI. 

EUR: 

Retail PMI, PPI m/m, French and Spanish 10-y Bond Auction. 

USD: 

ADP Non Farm Employment Change, Unemployment Claims, Non-Manufacturing PMI.

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