Morning Commentary: Fighting Fires on Multiple Fronts

Foreign Exchange - Morning Commentary

Fighting Fires on Multiple Fronts

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
No sooner did we write yesterday about a near term decoupling of the markets related to U.S. interest rate movements did that linkage become important again. Yesterday's Fed minutes had an unexpected hawkish bias to them regarding future interest rate increases and the strength of the economy.  U.S. interest rates surged higher and there was a ripple effect across almost all asset classes inclusive of sending the U.S. dollar higher and equities lower.
Yesterday, the Treasury declined to name China as a currency manipulator, but the language and rhetoric was intensified towards China with the threat remaining of calling them out as a currency manipulator. Asian stocks and currencies (not Aussie) all weakened sharply, but European equities are mixed and the U.S. dollar has given back most of its gains from overnight to be nearly unchanged against many of the major currencies.
In addition to these two front line stories, markets are clearly focused on the Brexit negotiations, the EU’s reactions to the Italian budget overshoot, and the ramifications regarding the disappearance and apparent murder of a dissident Saudi journalist impacting geopolitics, domestic politics, and the price of oil. Multiple balls in the air are once again causing havoc and confusion in the markets as volatility levels remain elevated. Continue to expect the unexpected with sharp market reactions and reversals.
  • The Australian dollar is one of the few currencies in green territory today. The Aussie jobs report for September was mixed, but there were some positive silver linings to the report. While the total jobs created was less than expected at 5,600, there were more full time jobs created than part time as full time gains totaled 20,300. The UR rate dropped from 5.3% to 5.0%, but the labor participation rate fell from 65.7% to 65.4%. Aussie interest rates reacted positively to the report pulling the Aussie dollar higher, but it is currently off of its best levels.
  • The Bank of Korea kept interest rates unchanged once again at 1.50%. The market was split between those expecting a rate increase of 25 bps and an unchanged vote. Inflation has been creeping higher but downside risks to the economy remain strong; the central bank voted to be cautious and stand pat.
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