Today’s Key Market Drivers – 11th September 2017

Currency markets have opened the week with an immediate relief rally on Monday with base currencies gapping higher against the Yen as Hurricane Irma is downgraded to a category 2 hurricane as it travels up the west coast of Florida. North Korea also held back from any further missile launches over the weekend giving traders reason to believe the military conflict between the DPRK and the west is a lower probability. With US political and economic challenges recently mounting and its war of words against the North Koreans, the USD v JPY hit a new 10-month low trading as low as 107.31 late last week. But I think the Dollar is close to its lows now.

When we look at the key drivers of currency markets this is what is going on. The US Fed is not likely to raise interest rates again unless inflation picks up and coupled together with Trump’s political challenges traders have been pricing the US Dollar lower. There will be a huge cost of rebuilding Texas and Florida in the wake of the storms but I doubt this will have any long-lasting impact on how traders price the US Dollar. My personal view is the bad news is now 100% priced into the greenback and it won’t surprise me to see the current levels of the US Dollar as the lows for 2017 and we steadily see a relief rally in the US Dollar into Xmas. All the good news for the Euro is now 100% priced into the currency with the ECB confirming it will likely begin its tapering program in October. The Euro has been rallying all year waiting for the ECB to confirm it will taper its stimulus program and now that it’s been confirmed by the Central Bank history shows a huge move like the Euro has been on will likely reverse and we will see a correction on the European currency. The Canadian Dollar is a similar story to the Euro, however, the Bank of Canada did surprise markets last week with a rate hike so there could still be some further upside on the Caddie but I don’t expect it to be anything like we have seen in the past 9 months. The Canadian Dollar has rallied in 2017 as traders priced in the likelihood of higher interest rates at the BOC and this has been confirmed with two rate hikes this year. Therefore I think the USD v CAD is close to its lows for the year and the BOC will sit on its hands for the coming 3 to 6 months.

The Aussie and Kiwi Dollars have been rising against the US Dollar because the US Dollar has been the biggest loser in recent months, however, both currencies will always offer a strong carry trade opportunity for traders to buy the AUD or NZD as a base currency and pick up the swap fee against the likes of the JPY when the US Dollar is out of favour. If the stock market rallies into Xmas, which history shows that it usually does then the AUD v JPY and NZD v JPY will likely rise higher. The Yen will only continue to rise if traders are fearful and there has been plenty of fear in the market recently surrounding North Korea.

Looking at the economic calendar there is plenty of high impacting news in the second half of the week with the Bank of England being the only major Central Bank reporting this week. The Pound has been on a tear higher in recent days and Tuesday sees the release of the latest inflation report, Wednesday sees the official UK unemployment rate and weekly earnings and then on Thursday the Bank of England’s monthly statement is due so you can expect to see the Pound volatile again this week. I suspect the gaps that were created on currency pairs this morning will close at some point in the coming 24 hours.

 

About the Author: Andrew Barnett

Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts, and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular key-note speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).

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