Tuesday, November 1, 2016

Dollar Edges Up As Fed, U.S. Jobs Data Awaited

Reuters
November 1, 2016

The dollar edged higher on Tuesday as the final days of the contentious U.S. presidential campaign overshadowed other major market events, as investors weighed the latest concerns about an FBI investigation into Hillary Clinton's use of a private email server.

Both the Bank of Japan and the Reserve Bank of Australia held policy steady as expected. While the former had little impact on the yen, the later sent the Australian dollar to its highest since last Thursday.

The Aussie was buying $0.7647 AUD=D4, up 0.5 percent, after rising as high as $0.7652 after the central bank kept its cash rate steady at 1.5 percent as the money market priced in only a minor possibility of a move at the next meeting in December.

The RBA said the economy was expected to grow near potential over the next year as it assesses the impact of past cuts in August and May.

The yen's moves after the BOJ were subdued by comparison, with the dollar erasing its tiny losses and edging higher.

The Bank of Japan held off on expanding stimulus despite cutting its inflation forecasts and warning of risks to its price outlook. Investors awaited BOJ Governor Haruhiko Kuroda's post-meeting news conference later this afternoon.

"We're in limbo, unfortunately, ahead of the U.S. election," said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets. "There's a realization that the BOJ has done its job, and has been creative, and we're still where we are, in terms of low inflation."

The dollar bought 104.85 yen JPY=, up slightly on the day but still shy of Friday's three-month high of 105.54. It managed to gain more than 3 percent for the month of October, even after dropping on the news of the Clinton email developments.

Next week's U.S. presidential election remained the biggest event hurdle investors faced, as some fear an unexpected outcome could prompt the U.S. Federal Reserve to delay a rate hike beyond the expected year-end date.

Clinton held a five percentage point lead over Republican rival Donald Trump, according to a Reuters/Ipsos opinion poll released on Monday, down only slightly since the FBI said last week it was reviewing new emails in its investigation of the former secretary of state ahead of the Nov. 8 election.

As Clinton is viewed as the status quo candidate for markets, the news weighed on the dollar and nudged it away from highs hit on growing expectations the Fed will raise interest rates in December. However, major currency pairs have largely stuck to their ranges since news of the email probe broke last week.

"The market is not really responding sensitively to U.S. political events since Friday," said Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo.

"We have to keep an eye on political and economic events in the U.S.," he said. "People are still pricing in the victory of Secretary Clinton, and a U.S. rate hike in December."

Markets see only a small chance that the Fed will raise rates before the election at the conclusion of its two-day meeting on Wednesday, but traders will be scouring its statement for clues as to the timing of its next interest rate increase.

Markets were pricing in around a 78 percent chance the Fed will raise rates in December, but just a 6 percent chance of a hike this week, according to the CME Group's FedWatch Tool.

On Friday, the October U.S. employment report will also be scanned for the latest reading on whether labor conditions are improving enough for the Fed to act. Employers are expected to have added 175,000 jobs in the month according to the median estimate of 100 economists polled by Reuters. [ECONUS]

The euro was down 0.2 percent at 1.0960 EUR=, while the dollar index was slightly higher at 98.467 .DXY.

Sterling slipped 0.1 percent to $1.2230 GBP=D4 but was underpinned by news that Bank of England Governor Mark Carney said he would stay in his job for an extra year, until the end of June 2019.

The Bank of England will meet on Thursday.


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