Markets Remain in Risk-On Mode

Daily Analysis - 09/10/2015

Dovish Central Bank Policy Minutes Give Equities and Commodity Currencies a Boost

The FOMC meeting minutes released yesterday painted a dovish tone, leading to the US Dollar to remain weak versus peers. Other Central bank meetings during the day including the BoE and the ECB also highlighted a dovish outlook that has led the Kiwi and Aussie dollar to continue rallying as equities soared.

ECB Keeps Options Open on QE

Yesterday, the European Central bank released its monetary policy meeting minutes, discussing the latest decision and its efforts to restore inflation and growth to the Euro Area. The ECB noted that it has two main channels to maintain its accomodative monetary policy, which are namely extending the duration of the current quantitative easing asset purchase program beyond September 2016 or to cut deposit rates further. Expanding the asset purchase program however is viewed as the immediate response amid news that the ECB will be attempting to front load more purhcases ahead of the winter months. It is widely seen that the impact of lower energy prices will continue to keep the Euro Area’s inflation well below the ECB's target rate. The Euro initially weakened on the release to test the lows near 1.1250 before recovering and rebounding to close near 1.1274.

BoE Leaves Rates Unchanged

The Bank of England in its monthly monetary policy meeting yesterday left interest rates unchanged as well as no change to the MPC vote count on rate hikes. There was only one dissenter, Ian McCafferty, who remained hawkish in his viewpoint, favoring a rate hike. In its minutes the Bank of England said that monetary policy will remain accomodative in the near-term as inflation concerns continues to persist. As was widely expected, there were not any major shifts to the BoE's current monetary policy measures and the tone of the minutes was largely neutral. The GBPUSD currency pair weakened on the BoE's minutes after the Pound hit a daily session high near 1.5370, falling to the daily lows near 1.5267. It was the FOMC meeting minutes which helped the GBPUSD recover to the upside from the losses to close the day near highs.

FOMC Meeting Minutes

September's FOMC meeting minutes released yesteday showed that unlike the narrative from the various Fed members in the past few weeks who said that the September rate hike was a 'close' call it was actually divided. The minutes presented a view that the FOMC voting members were largely divided between members who saw the economic conditions warranting a rate hike by end of this year and the other members who preferred to wait for more economic data before deciding to hike rates. The FOMC minutes also revealed lingering concerns amongst Fed's members on inflation expectations. While the FOMC members were broadly optimistic on the labour markets, their confidence on inflation rebounding was low. The dovish Fed minutes saw the US Dollar weaken across the board with most commodity risk currencies showing strong gains, in particular the Kiwi which continued to rally and is currently testing a two-month high at 0.6680.

Canada Jobs Report

Data from Canada today will see the release of the monthly unemployment data. Expectations call for the Canadian unemployment rate to dip a tick lower from 7.00% to 6.90% while the median forecast expects payrolls to rise by an additional 10,000 jobs. The Canadian dollar has remained firmer over the past few sessions, led in party by gains in crude oil prices and other commodities. The USDCAD previously hit a multi-year high of 1.3365 before starting to retreat. In the process of pulling back from highs, the currency pair has formed a bearish engulfing candlestick on the weekly chart. Expectations are for prices to remain subdued into today's jobs report which could push the pair even lower. Technical support comes in at 1.2723 after the key psychological level of 1.3000 was broken yesterday.