The euro teetered near its lowest in more than two years against the greenback before data expected to show European inflation has remained tepid, suggesting euro zone policy will remain accommodative for some time.
The Australian dollar edged lower after the Reserve Bank of Australia (RBA) cut interest rates and expressed concern about job growth, while the New Zealand dollar hit a new four-year low as weak business sentiment continued to weigh on the kiwi.
A host of economic data and comments from central bankers this week will set the tone for major currencies as traders try to determine how far policymakers will go to bolster growth.
The dollar index against a basket of six major currencies rose 0.10% to99.479, after briefly touching the highest since May 12, 2017.
The dollar rose 0.17% to 108.26 yen, close to its strongest level in almost two weeks.
The yen remained weak after the Bank of Japan’s Tankan showed business confidence in the third quarter slid to its lowest in six years.
Trading was subdued in Asian time because China’s financial markets are closed until Monday for public holidays. Financial markets in Hong Kong were also closed on Tuesday for a holiday.
The Institute for Supply Management’s measure of U.S. manufacturing activity later on Tuesday is forecast to show a return to expansion in September, but just barely.
In August, U.S. manufacturing activity contracted for the first time in three years due to the U.S.-China trade war.
Several Fed policymakers are scheduled to speak this week, but traders said they will focus most on comments from Fed Chairman Jerome Powell on Friday for hints about the direction of U.S. monetary policy.
The euro fell 0.09% to $1.0889, close to its lowest since May 12, 2017.
· Dollar index (DXY), which tracks the value of the greenback against major currencies, is currently trading at 99.49 – the highest level since May 2017.
The index gained 3.4% in the third quarter – the biggest quarterly gain since second quarter of 2018.
As of writing, the index is reporting a 3.61% gain on a year-to-date basis.
Looking forward, the greenback may continue to gain altitude, as the bond yields across Europe and Japan are offering negative yields. Further, the central banks in Australia and New Zealand are widely expected to hit the zero lower bound next year.
· Chinese President Xi Jinping said Tuesday in a speech commemorating the 70th anniversary of the Chinese Communist Party’s rule that no force could sway China’s development.
“There is no force that can shake the foundation of this great nation,” Xi said in Mandarin, according to an official translation broadcast through state media. “No force can stop the Chinese people and the Chinese nation forging ahead.”
Xi did not specifically mention any other country by name, and emphasized that China would pursue peaceful development.
· Qatar’s economy contracted by 1.4% in the second quarter from a year earlier, according to government statistics, hurt by a drop in the manufacturing and construction sectors.
Gross domestic product (GDP) also contracted by 0.9% in the second quarter compared to the first, based on constant prices, the data showed.
The manufacturing sector declined 7.4%, while construction fell 3.5%, data from the Qatar’s Planning and Statistics Authority showed.
· Growth in India’s manufacturing sector remained weak in September and forward looking indicators in a private business survey suggest the country’s wobbly economy is unlikely to start recovering anytime soon.
The Nikkei Manufacturing Purchasing Managers’ Index INPMI=ECI, compiled by IHS Markit, was 51.4 in September, unchanged from August.
While it has been above the 50-mark that separates growth from contraction for over two years, the growth rate in September and August was the slowest since May 2018.
· Japanese Economy Minister Yasutoshi Nishimura said on Tuesday that he believe the Bank of Japan will decide monetary policy appropriately.
He also said the government will closely monitor downside risks from overseas as well as the impact from a sales tax hike to 10% from 8%, which took effect on Tuesday.
· Australia’s central bank cut interest rates for the third time this year on Tuesday in a bid to stimulate a sluggish economy and signaled it was prepared to do more if needed, knocking the local dollar to a one-month low.
The country’s economy has expanded for 28 years without a recession, but risks have intensified over the past year, with growth slowing, inflation lukewarm, the property market subdued and unemployment ticking higher.
The Reserve Bank of Australia’s (RBA) quarter-point cut took the cash rate to an all-time low of just 0.75%, leaving little room for more reductions and raising the possibility of unconventional policy easing.
RBA Governor Philip Lowe said moves by global central banks to ease monetary policy played a part in the decision as he signaled the need for an extended period of low interest rates.
“The Board will continue to monitor developments, including in the labor market, and is prepared to ease monetary policy further if needed...,” Lowe said.
· South Korea recorded an annual fall in consumer prices for the first time in September while exports shrank for a 10th consecutive month, data showed on Tuesday, reinforcing expectations of further policy easing from the central bank.
The consumer price index slid 0.4% in September from a year earlier, the Statistics Korea data showed, just missing a 0.3% fall tipped in a Reuters survey. It was the first time South Korea has recorded deflation on an annual basis since data releases began in 1965.
Exports in September plunged 11.7% from a year earlier, trade ministry data showed, missing forecasts for an 11.2% decline and marking the10th month of annual loss in a row.
· Prime Minister Boris Johnson will shortly present the European Union with proposals for an amended Brexit agreement, including new ideas that remove the contested insurance policy for the Irish border that Britain previously signed up to.
More than three years since the 2016 referendum, the United Kingdom is heading towards an Oct. 31 exit date without a clear understanding of whether it will leave with a deal, without a deal or even leave by that deadline.
· A recession in Germany’s manufacturing sector deepened in September with factories recording their weakest performance since the depth of the world financial crisis a decade ago, a survey showed on Tuesday.
IHS Markit’s Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the German economy, fell to 41.7from 43.5 in August. This was the lowest reading since June 2009.
“The downward trend in new orders, which fell the most in more than10 years, is a particular worry, and continues to drive cutbacks in factory output, employment and prices,” said Phil Smith, Principal Economist at IHS Markit.
Germany’s export-reliant manufacturers are suffering from a slowing world economy and business uncertainty linked to a trade conflict between the United States and China as well as Britain’s planned exit from the European Union.
· British proposals to address the problem of the Irish border after Brexit, which were reported by Ireland’s state broadcaster RTE, are only preliminary and are not the “be all and end all” of the plans, Britain’s justice minister said on Tuesday
· British house price growth touched an eight-month low in annual terms in September, adding to signs that the market may be cooling again ahead of the October Brexit deadline, a survey showed on Tuesday.
House prices rose 0.2% on the year, slowing from a 0.6% increase in August, mortgage lender Nationwide said. A Reuters poll of economists had pointed to a 0.5% rise.
· Oil prices rebounded on Tuesday on reports that production at the world’s largest oil producers fell during the third quarter, although a resumption in Saudi supply and demand concerns continued to keep a lid on prices.
December Brent crude futures rose 51 cents, or 0.86% to $59.76 a barrel by 0426 GMT, while U.S. West Texas Intermediate crude for November was up 52 cents, or 0.96%, at $54.59 a barrel.
Front-month prices for both contracts posted their largest quarterly falls this year on Monday, hurt by a slowdown in global economic growth amid the U.S.-China trade war.
“Asia has seen some profit-taking from short-term money and other bargain hunters,” Jeffrey Halley, a senior market analyst for Asia Pacific at OANDA in Singapore, said.
“Any rallies though are likely to be met with plenty of sellers as a slowing global economy and the recovery of Saudi production outweigh any Middle East risk factors for now.”
Oil prices are likely to remain steady, with Brent averaging $65.19 a barrel and WTI $57.96 in 2019, as flagging demand outweighs supply shocks, a Reuters survey showed.
Reference: Reuters, CNBC,Daily FX
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