- Emerging market currencies were broadly better bid, especially the Mexican peso, but it was the Canadian dollar which appreciated the most as experts concurred that Hillary Clinton had won this first round
- We maintain our bearish view on the loonie as we believe that the slowdown of the economy, anaemic inflation and weak prospects in crude oil prices have all increased the likelihood of a rate cut by the BoC
- High quality commodity currencies were in solid demand with the Norwegian krone going up as the International Energy Forum kicked off yesterday
- The speculations surrounding the output freeze discussions will remain the main driver before the market switches focus to US crude inventories, which are due for release tomorrow
The foreign exchange market reacted sharply to yesterday’s first US presidential debate. Emerging market currencies were broadly better bid, especially the Mexican peso but it was the Canadian dollar, which appreciated the most as experts concurred that Hillary Clinton had won this first round. The Mexican peso rose 1.70% against the greenback with USD/MXN falling as low as 19.4848 before stabilising at around 19.55. The peso has been widely seen as a gauge of market sentiment regarding the possible outcome of the US election as a Trump victory would certainly mean a tougher trade deal for Mexico.
The Canadian dollar was also in demand after the debate with USD/CAD falling back below the 1.32 threshold, down to 1.3166. From a technical standpoint, the currency pair is stuck below its 200dma currently standing at 1.3239, while on the downside a support can be found at 1.2764 (low from August 18th). We maintain our bearish view on the loonie as we believe that the slowdown of the economy, anaemic inflation and weak prospects in crude oil prices have all increased the likelihood of a rate cut by the BoC.
High quality commodity currencies were in solid demand during the Asian session as the Australian and New Zealand dollar rose 0.47% and 0.38% respectively, while the Norwegian krone was up 0.12% as the International Energy Forum kicked off yesterday. Crude oil prices have been on a rollercoaster ride since Friday as rumours about a potential OPEC output freeze deal spreads. The West Texas Intermediate was down 5% on Friday but bounced back yesterday to $46 a barrel. The speculations surrounding the output freeze discussions will remain the main driver before the market switches focus to US crude inventories, which are due for release tomorrow.
In the equity market, Asian equity indices recovered from yesterday's sell-off, partially erasing the losses. In Japan, the Nikkei was up 0.84%, while the broader Topix index surged 1%. In mainland China the Shanghai and Shenzhen Composites were up 0.30% and 0.42% respectively. Offshore, Hong Kong’s Hang Sang was up 1.35%. Finally in Europe, equity futures were all trading in positive territory, suggesting a higher open. US futures were also blinking green on the screen with futures on the S&P 500 up 0.62%.
Today traders will be watching PPI, trade balance and retail sales from Sweden; industrial sales and orders from Italy; Markit services and composite PMIs, consumer confidence and Richmond Fed index from the US.