US dollar strengthened following FOMC’s decision to stay put on interest rates, paving way for a potential December rate hike as economy remains solid and labour market is strong.

US dollar index rose half a percent to 96.5 area, sending euro, yen, sterling and Aussie lower. Brent crude oil price broke down $72.1 support as dollar rallied and inventory built up over the past few weeks showed no sign of stopping soon. Exemption of eight countries from US sanction on Iran also painted a more bearish outlook for crude prices as supply is likely to remain elevated. 

Asian markets opened broadly lower this morning, following a correction in US equities overnight. Stronger US dollar and likelihood of another Fed rate hike in Dec multiplied with rising borrowing cost dampened risk appetite for investor. Singapore market opened 0.8% lower as earnings from several blue chips failed to deliver positive surprises this week. Offshore & marine sector is also under pressure due to lower crude oil prices.

Today’s China CPI and PPI are potential market movers as analysts see slowing down of factory door prices as the country’s economy cools and manufacturing activities suggest weaker external demand as trade friction hurts confidence. This afternoon’s UK 3Q GDP figure and US Michigan consumer confidence were also key data to look at for potential volatility in GBP and dollar pairs.

China export and import in October surged 15.6% and 21.4% in US dollar terms, smashing consensus forecast of 11% and 14% respectively, with front-loading activities and intermediate trade amongst the key drivers amidst intensified trade friction with the US. The trade surplus was US$34.1 billion, lower than forecast by about 1 billion as growth in imports exceeded that of exports.

A breakdown of trade data suggests that oil, natural gas, soybean and iron ore were leading the gain in imports last month, partly due to higher demand for industrial commodities and relaxation of environmental regulations in the upstream. Export to US, EU and Japan slid to 13.2%, 14.6% and 7.9% respectively, comparing to 14%, 17.4% and 14.3% a year ago. This suggested weaker external demand from China’s major trade partners, despite a sharp decline of yuan since June being a positive catalyst on exports. On the other side, exports to Hong Kong, South Korea and Vietnam surged to 23.6%, 7.7% and 17.6% respectively, suggesting that intermediate trade and revived demand from Asian markets are helping to cushion the slowdown of demand from the west.

The outlook, however, remains uncertain as front-loading effect probably masks the impact of 10% tariffs on US$200 billion exports, which took effect on 24th Sep. A cooling off in trades with US, which accounts for about 20% of all China exports, is likely to emerge early next year if there is no breakthrough in trade issue in the Trump-Xi meeting later this month.

China official manufacturing PMI has already shown signs of weakness falling to 50.2 in the month of October to two-year low. The new export order index has dived further to 46.9, contracting for a fifth consecutive month.

Amongst popular forex pairs, AUD/USD probably offers the best proxy of China’s story due to their strong commodity trading ties. AUD/USD has broken out above the descending channel on day chart and its SuperTrend (10,3) has flipped upwards for the first time in four months, suggesting the short-term trend has turned bullish and momentum biased towards the upside. Immediate support and resistance for AUD/USD could be found at around 0.722 (161.8% Fibonacci Extension) and 0.737 (127.2%) respectively.

Crude Oil Brent – Cash

By Margaret Yang in Singapore

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. CMC Markets is regulated by the Monetary Authority of Singapore.