Forex Market Review (European Session) – Aussie bounces after RBA Lowe says next rate move is up; Turkish lira hits record low

Forex Market Review (European Session) – Aussie bounces after RBA Lowe says next rate move is up; Turkish lira hits record low

The aussie overperformed its peers during the European session, posting a strong rebound after the RBA governor ruled out the possibility of expanding stimulus monetary policy. On the other hand, the Turkish lira hit a record low against the greenback after the Turkish president threatened to take control of the Central Bank of the Republic of Turkey (CBRT).

Speaking at a dinner event in Sydney, the RBA governor underlined that “there is not a strong case for a near-term adjustment in monetary policy”, explaining that the labour market has more space to grow, while the RBA expects inflation to rise gradually and remain below the central bank’s target level for some time. However, he mentioned that “the next move in interest rates will be up, rather than down” if the economy performs in line with expectations, foreseeing that employers will invest in the workforce and therefore accelerate consumers spending. Early on Tuesday, the minutes of the RBA’s meeting in October revealed concerns on subdued wage growth, pushing the aussie down to a five-month low of $0.7532. But after Lowe’s speech, the aussie erased this week’s losses, jumping to $0.7583 and gaining 0.30% on the day.

Its New Zealand cousin rose by 0.34% to $0.6831 despite global dairy prices falling by 3.4% in this month’s second Global Trade Dairy Auction. In the previous auction, dairy prices declined by 3.5%.

The greenback was in a range against its counterparts, with the index slipping back to 94.08 after reaching a fresh one-week high at 94.16 in the first hours of the session. Investors will be eager to hear any developments in the tax story but only after Senators return from a week off due to Thanksgiving holiday on Thursday. Moreover, their bets on next year’s interest rate trajectory might shift as four new members are said to join the Fed board. The current Fed chair, Janet Yellen confirmed yesterday that she would step down from the board after her successor, Jerome Powel takes over as chair, creating a fourth vacancy. Minutes from October’s FOMC meeting due on Wednesday will also gather attention.

Data on the US existing home sales released before the session-end appeared better than expected, adding some gains to the dollar.

Dollar/yen was last trading 0.40% lower at 112.20.

The loonie gained 0.40% on the day on the back of higher oil prices, although readings on wholesale sales in September came in disappointing. Dollar/loonie was last seen at 1.2767.

In other news, the Turkish president, Tayyip Erdogan, criticized monetary policy, spreading fears of a potential government intervention in monetary decisions. This emerged after the CBRT decided to tighten liquidity by raising borrowing costs, ignoring Erdogan’s desire to lower interest rates. The dollar topped at an all-time high of 3,9768 versus the Turkish lira in the face of Erdogan’s threats.

The euro was mainly steady at one-week low levels of $1.1740, unable to recover as investors were closely watching political developments in Germany. Reports that the ECB will only be making minor adjustments to its monetary policy guidance next year rather than a major shift to its language as its current quantitative program expires in December did not bring any significant volatility to the market.

Four BOE members including Michael Saunders, Jon Cunliffe, Ian McCafferty and Gertjan Vlieghe testified in front of the British Parliament early in the session, backing a forward guidance on monetary policy dependent on economic developments. Moreover, they supported that the central bank would not make conclusions on Brexit, retaining its assumption of a smooth exit from the bloc, unless business and consumer surveys show otherwise. Pound/dollar rose by 0.11% to 1.3241, while euro/pound hit a 1 ½-week low of 0.8841 before inching up to 0.8856.

In commodities, gold surged by 0.48% to trade at $1,282.43 per ounce and energy prices extended their uptrend ahead of the API weekly report on US oil inventories. WTI crude increased by 1.12% to $57.05 per barrel and Brent jumped by 0.80% to $62.71.

Source: Trade Forex with XM.

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