Dollar Gains in Data Lull

November 11, 2024
6 min read

Dollar Gains in Data Lull

  • USD is firmer against most major currencies. U.S. and European equity futures are up.
  • NOK ignored Norway’s mixed October CPI report.
  • AUD is facing headwind from lower iron ore prices.

Please see our Drivers for the Week Ahead for an in-depth look at what markets are facing this week.

The fundamental USD uptrend is intact in part because the U.S. economy is in a sweet spot and outperforming other advanced economies. Moreover, the prospect for looser fiscal policy under a Trump administration and limited Fed easing room point to a stronger USD.

There are no policy-relevant economic data releases today. The U.S. October CPI (Wednesday) and retail sales (Friday) reports are this week’s data highlights. There are also plenty of Fed speakers throughout the week including Chair Jay Powell Thursday.

EUR/USD is trading on the defensive just above 1.0700. The ECB is on track to deliver more policy rate cuts. ECB Governing Council member Robert Holzmann said “there’s nothing at the moment that would speak against it [a December rate cut], but that doesn’t mean that it will automatically happen.” Markets have fully priced-in a 25bps policy rate cut and a 15% probability of a 50bps cut at the December 12 ECB meeting. Over the next 12 months, market anticipates the ECB policy rate to bottom between 1.75 and 2.00%.

NOK ignored Norway’s mixed October CPI report. Headline inflation slowed less than expected to 2.6% y/y (consensus: 2.4%) vs. 3.0% y/y in September. Underlying inflation matched expectations and eased to 2.7% y/y vs. 3.1% y/y in September. Inflation is tracking below the Norges Bank’s forecast, but the bank is in no rush to loosen policy in part because of the depreciation in the krone. A first full 25bps rate cut is priced-in for March which is in line with the Norges Bank’s policy guidance.

AUD/USD is holding under 0.6600 and facing headwind from lower iron ore prices. Iron ore future prices extended Friday’s losses triggered by China’s underwhelming fiscal package. In our view, China’s 10 trillion yuan fiscal package aimed at refinancing local authorities’ off-balance-sheet debt is not the long-term solution China needs to address its huge debt overhang and rising deflation risks.

To escape the debt-deflation loop, Chinese policymakers need to ramp-up fiscal measures to boost consumption growth. In the meantime, deflationary risks remain high and further easing is warranted. Over the weekend, CPI and PPI came in weaker than expected at 0.3% y/y and -2.9% y/y in October, respectively.

JPY is underperforming. The comments from the Bank of Japan’s Summary of Opinions for the October 30-31 meeting generally argue for a cautious normalization cycle. Odds of a December BOJ 25bps hike have risen to 45% vs. 32% earlier this month, while the odds of a January 25bps hike have risen marginally to around 80%. Only 40bps of total tightening is seen over the next 12 months, which is not materially different from before the October meeting.

Japan’s adjusted current account surplus narrowed sharply in September but remains JPY supportive especially during periods of heightened risk aversion. The adjusted current account surplus dropped to ¥1,272bn in September from a record high of ¥3,146bn in August. Annually, the current account surplus remains historically high totaling ¥27,669bn or 4.5% of GDP in September.

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