DAILY FX WRAP – USD dictates play in FX markets as Asia Pacific and European participants react to yesterday’s FOMC minutes
Much of the day’s price action in FX markets has been a continuation of the fallout from yesterday’s FOMC minutes, with USD the notable mover. The greenback has continued to move lower throughout the day, extending on its losses particularly as US participants arrived at their desk in a touted yield play, with participants interpreting the FOMC minutes as showing a more gradual and shallow rate path. As such, USD has lost ground against major pairs, with USD/JPY one of the notable outperformers given that the BoJ stood pat on their current QQE programme at their meeting during Asia-Pacific hours as expected.
Commodity currencies have seen a bid throughout the day as a consequence of the dual benefit from a weaker USD, with currencies benefitting directly, while also benefitting through gains in commodities. Spot gold was the notable outperformer in commodity markets, coming off recent lows to trade higher by over USD 10.00/oz given the aforementioned interpretation of a more gradual rate path. As such, the likes of AUD, as well as CAD, RUB and NZD all benefitted, while ZAR is another notable outperformer, with the South African central bank unexpectedly hiking rates by 25bps.
In terms of data today, gains seen in GBP against the USD have been capped compared to other major counterparts, given the lower than expected retail sales (Ex Auto Fuel M/M -0.90% vs. Exp. -0.60%), which showed the largest monthly fall since September 2014. Separately, US Continuing Claims (2175k vs. Exp. 2167k) printed higher than expected and as such did little to stem the USD weakness.
Looking ahead, tomorrow sees Canadian retail sales and CPI, as well as comments from ECB’s Draghi, Coeure, Praet, Weidmann, Constancio and de Galhau and Fed’s Bullard and Dudley.