FX Market Update - USD Narrowly Mixed as Pro-Risk Mood Fades
• USD mixed as markets unwind risk-on trading on Trump’s recovery.
• CAD extends gains versus USD marginally before settling back.
• EUR grazes 1.18 level; gains look capped by ‘second-wave’ fears.
• GBP cracks above 1.30 but pulls back as no-trade-risks keep Cable on edge.
• JPY benefits from risk-adverse trading; leads G10.
• AUD lags all majors after RBA holds rates but sets up more easing.
• MXN declines in risk-off mood but finds support from stronger oil.
FX Market Update - Major currencies are little changed and holding recent ranges more or less in quiet trade. The positive risk mood has faded a little after the late day rally in stocks yesterday as President Trump left hospital and markets were hopeful that US lawmakers could make progress on fiscal support measures. This morning, concerns about the president’s health persist while there is little sign of real progress on stimulus to help support sentiment. The USD slipped fractionally in overnight trade to extend the drop back from the late September high but the DXY is currently little changed on the session, reflecting the fade in risk assets. European stocks are flat to down slightly while US equity futures are down modestly and major bond markets are slightly firmer. In the FX space, the JPY is out-performing while the AUD is at the foot of the G10 overnight performance league to underscore the risk-off tinge to markets generally. The RBA left policy settings unchanged earlier, as expected, but changed its statement ever so slightly to hint at further easing.
Crude prices remain firm following yesterday’s surge, however, while gold prices are modestly lower. We remain longer run USD bears—reduced growth and yield
supports for the USD combined with rising deficits and broader rebalancing of overweight USD positioning are negative factors in the longer run we feel—but nearterm uncertainty and volatility in the run up to the US elections suggest that the USD is likely to remain better supported. We expect the USD to rise modestly into November, reflecting the USD’s longer run tendency to appreciate in the run up to presidential elections. The US (and Canada) releases trade data this morning but the day is replete with central bank speaking engagements; Fed Chairman Powell and ECB’s Lane address the NABE conference. ECB President Lagarde participates in a panel discussion. The Fed’s Harker, Bostic and Kaplan all have various speaking engagements this afternoon.
