Dollar back on track

The dollar rally picked up pace once again into the end of the week boosted by stronger US data while oil slumped.

US Trader
Source: Bloomberg

Asia markets which had seen a turbulent week prior, look set for another week with many key events and indicators feeding in.

After failing to see a firm break above the 98.000 level previously, the DXY index had once again traded above the level at the start of the new week. Mirroring the optimism from China’s first pick up in Producer Price Index (PPI) in almost five years, the stronger than expected US PPI data injected some momentum into the market.

Headline PPI came in at +0.3% YoY from a neutral figure in August. Excluding food and energy, PPI was seen at +0.2% YoY. Meanwhile retail sales broadly met expectations, heading into growth territory at +0.6% YoY from -0.2% YoY (revised). The optimism reignited the dollar rally, with the markets still in anticipation of a hike before the end of the year.

Over and above the data drivers, New York Fed President William Dudley supported the dollar strength with more hawkish comments. Although the highly anticipated speech by Federal Reserve Chair Janet Yellen led the market down a dovish path, indicating that a “high-pressure economy” may have its benefits, the market had largely dismissed the words as an attempt to stabilise the market, three weeks ahead of the US Presidential Elections.

JPY had been the worst hit as expected with USD/JPY trading back above 104.00 and the momentum may be carried through to the rest of Asia on Monday. We will also see more data from the manufacturing slice of the economy and comments from Federal Reserve Vice Chair Stanley Fischer in US hours which should help to guide the movement in prices.

Separately, oil prices were weighed into the end of the week, driven by a strong US dollar and an increase in US rig counts. The Baker Hughes rig count rose for a seventh consecutive week, a direction that was also seen in both the API and EIA reports. The lack of developments in the OPEC agreement case have allowed prices to be temporarily swayed by the reports from the US. Lower oil prices coupled with stronger than expected US banks earnings had brought the S&P 500 index to a flat close on Friday.

The dollar rally and oil movements have been the main stories of late and unfortunately, it might remain the case for another week. This is especially so with the third and final US Presidential debate to occur on Wednesday (Singapore time), though China’s Q3 GDP and October’s ECB meeting may add more colour to the markets in the latter half of the week.

Friday: S&P 500 +0.02%; DJIA +0.22%; DAX +1.60%; FTSE +0.51%

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