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Dollar Mildly Lower On Fed Evans And ISM

Published 12/02/2015, 03:42 AM
Updated 03/09/2019, 08:30 AM

Dollar weakened mildly overnight on comments from a Fed official as well as disappointment from manufacturing data. The dollar index is trading back below 100 handle for the moment but stays well above near term support 98.43. Technically, while we might see some consolidative trading in near term, the outlook stays bullish for a take on key resistance level at 100.39. Chicago Fed president Charles Evans noted that there is "some nervousness" about the upcoming rate decision in December meeting. He expressed the preference to have "more confidence" that inflation is "beginning to head higher" before hiking rates. Meanwhile, "regardless of the exact date for liftoff, I think it could well be appropriate for the funds rate to still be under 1 percent at the end of 2016."

The ISM manufacturing index released overnight was a big disappointment to the markets. The index dropped to 48.6 in 48.6 in November, much worse than expectation of 50.5 and hit the lowest level since June 2009. Production and new orders dropped into contraction region below 50. Inventories stayed below 50 for the fifth straight months and dived to 43. Some analysts noted that rebound in manufacturing activities could be dragged down by the strength in the US dollar. Nonetheless, a brighter spot in the report is that the employment component rebounded from 47.6 to 51.3. Overall, this piece of data alone shouldn't be enough to deter Fed's rate hike this month. Meanwhile, stocks shrugged off the data too,with DJIA closing up 0.95%.

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Australian dollar stays firm in Asian session as Q3 GDP grew 0.9% qoq, beating expectation of 0.7% qoq. Some analysts noted that much of the rebound was due to volatility in commodity exports, which recovered in Q3. Exports jumped 4.6% and added 1% to the GDP growth. Household spending rose 0.7% and added 0.4% to growth. RBA governor Glenn Stevens' comments were also supportive to the Aussie. He noted that "inflationary pressure was relatively contained on the way up, and while aggregate growth has been a little disappointing for the past couple of years, in the circumstances we face -- including very difficult global conditions in the aftermath of the financial crisis -- the outcomes are, I think, quite respectable."

Looking ahead, BoC rate decision is a main focus today and the central bank is widely expected to stand pat on policies. Fed will also release Beige Book economic report. On the data front, UK will release construction PMI and Eurozone will release PPI and CPU in European session. US will release ADP employment report.

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