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US Open Preview – Dollar’s rivals gain as US Congress split flags political noise; RBNZ rate decision awaited
November 7, 2018 1:26 pmVideo
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Here are the latest developments in global markets:
Day ahead: Political concerns rise in the US; RBNZ to stand pat on monetary policy
The dollar will be closely watched during the rest of the day as the outcome of the US midterm elections signalled a fresh wave of political uncertainty, sending the dollar lower. Although the Democrats’ victory in the House of Representatives was widely expected, investors focused on the negative implications the results might have as the opposition party is obviously not in favour of the US’s President’s fiscal agenda. Specifically, given that Republicans have now lost full control of Congress, Democrats could easily oppose Trump’s plans for further tax cuts and stricter migration controls in coming months, potentially bringing further selling to the greenback. Controversies around trade could also arise, turning the cloud around the US-Sino standoff even darker. Yet potential improvements in economic data and hence the Fed’s increasing willingness to deliver additional rate hikes in the future, might prevent investors from shifting funds away from the US.
Meanwhile in the UK, the sentiment around Brexit is not so negative following several positive headlines supporting that a Brexit deal could be possible . On Tuesday, the Cabinet meeting broke up without any agreement, though a “thumbs up” hand sign from the British Brexit Secretary boosted optimism that efforts to arrange an agreement were constructive. Moreover, Bloomberg’s analysts supported that a second meeting could be called within days to achieve an approval of the draft Brexit deal.
On the monetary front, the Reserve Bank of New Zealand is overwhelmingly projected to keep interest rates steady at a record low of 1.75% today at 2000 GMT. An upbeat employment report in combination with stronger inflation and GDP growth figures could turn policymakers less dovish, with investors waiting eagerly to see whether the RBNZ could play down chances for a rate cut. Note that in previous gatherings the Bank argued that interest rates could move either up or down. A press conference will follow the rate statement at 2100 GMT. Should policymakers appear more optimistic on the economy and hence on the rate path, the kiwi could experience stronger buying interest.
In Canada, Ivey PMIs will come out at 1500 GMT, though as usual, the loonie might shrug off the data.
At 2350 GMT, Japan will release core machinery orders for the month of September, while at the same time the Bank of Japan will be issuing its summary of opinions, giving some insight on what was discussed at the last week’s policy meeting when policymakers kept rates steady without surprise. The latter could move the safe-haven yen.
In energy markets, the Energy Information Administration is scheduled to report on US oil inventories for the week ending November 3 at 1530 GMT. Projections are for a smaller build-up in crude stocks, while the decline in distillate and gasoline stocks is expected to slow down. Crude prices could extend losses if the numbers prove that stockpiles are continuing to build up.
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