- EUR/USD moved sideways in Tokyo and stayed within a narrow range between 1.1317 and 1.1339
- USD/JPY continued to trade trendless between 119.38 and 119.55 with investors awaiting the outcome of the upcoming ECB meeting on Thursday
- Concerning Canada, it is hard to say whether the loonie will continue to depreciate or stabilise as further fiscal stimulus could prevent the BoC from cutting rate further
- Minutes form the last RBA meeting providing some support to the Aussie, we believe that there is some room for further Aussie appreciation as Reserve Bank will therefore stays on the side-line in the near future, which would limit the downside risk in most Aussie crosses
- Even if the Swiss economy continues to struggle due to the strength of its local currency, the weak inflation outlook in the euro zone is preventing investors to give up on the security induced by Swiss assets. Therefore, risk remains on the upside for the Swiss franc.
The loonie took a hit after Canadians voted in favour of an expansionary fiscal policy. The Liberal party, of which Justin Trudeau is a member, plans to take advantage of low borrowing costs to stimulate the economy, spending CAD 25 billion over three years in infrastructure projects, while cutting taxes for the middle class and increasing them for the wealthy. The loonie lost almost 3% against the greenback and is now back above the 1.30 threshold. On the upside, the closest resistance stands at 1.3071 (Fib 38.2% on September-October sell-off), while on the downside, the low from October 15th will act as support. However, it is hard to say whether the loonie will continue to depreciate or stabilise as more fiscal stimulus could prevent the BoC from cutting rates further. The market needs to digest the Liberal’s victory and is now waiting on the details of Trudeau’s political programme.
Compared to this excitement in Canada, it was a quiet session in Asia as market participants await the outcome of the upcoming ECB meeting on Thursday. EUR/USD moved sideways in Tokyo and stayed within a narrow range between 1.1317 and 1.1339. USD/JPY continued to trade trendless between 119.38 and 119.55 as data validated machine tool orders’ first estimate of -19.1%y/y. NZD/USD treaded water between 0.6784 and 0.6816.
In Australia, the minutes from the last RBA meeting provided some support to the Aussie, showing that the central bank is quite comfortable with its current monetary policy. The Reserve Bank will therefore stay on the sideline in the near future, which would limit the downside risk in most Aussie crosses. Overnight, the Aussie rose 0.50% against the US dollar and is currently stabilising slightly below the $0.73 threshold. We believe that there is some room for further Aussie appreciation, especially against the greenback as the US economy is of greater concern than the Australian economy, which has already adjusted to a lower commodity prices environment.
Data from Switzerland showed that a strong Swiss franc coupled with a faltering demand from Asian countries is a bad combination for the Swiss economy. September’s trade balance surprised to the downside, printing at CH 3.05bn versus CH 3.27bn median forecast on weaker exports. Swiss watch exports to Asian countries fell dramatically in September; on a year-over-basis, exports to Hong Kong contracted -18.2%y/y, while those to China and South Korea contracted by -13% and -35%, respectively. Even if the Swiss economy continues to struggle due to the strength of its local currency, the weak inflation outlook in the euro zone is preventing investors from giving up on the security induced by Swiss assets. Therefore, risk remains on the upside for the Swiss franc.
***Yann Quelenn, Market Analyst: “Swiss trade deficit is growing. This morning’s data confirmed this trend. September Swiss imports rose 2.6%m/m (prior -4%) and exports printed positive for the second month in a row at 0.2%m/m. The Swiss economy is clearly struggling to get back on the expansion track. Inflation is pushed down as the strength of the Swiss Franc, while increasing the purchasing power, adds prices’ downside pressures.
From our vantage point it is clear that Swiss industry is not yet fully recovered. The economy is also also feeling the heat of its return to its safe haven status. Global uncertainties about the first Fed rate hike increase the risk-off sentiment and capital is likely to flow back into the Swiss economy which would, ironically, continue to impact exports.”***
Today’s economic calendar will be light with housing stats and building permits from the US. Fed’s Dudley. Yellen will also speak today, as will the ECB’s Nowotny on the subject of economic forecasting.