Official pronouncements on currency valuation tend to have their greatest impact when markets are already trending. So it was last night, when Secretary Mnuchin’s comments provided a catalyst for another significant leg down in US Dollar exchange rates.
The sell-off in the US Dollar is likely to have implications for the Australian share market today. Stocks with major US investments may encounter currency headwinds, the resulting commodity rally may stabilise mining stocks and gold stocks should have a good day.
Last night’s market action also created parallel situations for the US Fed and OPEC. Persistent US Dollar weakness provides a reason for the Fed to continue lifting interest rates. The stimulatory impact of a weaker currency in tandem with pro cyclical stimulus from recent tax cuts should allow the Fed to continue the early stages of policy normalisation without harming growth.
In a similar vein, ongoing strength in the oil price and an improving inventory situation may bring forward the time when OPEC plans to taper its production ceiling.
Small declines in US indices overnight represent an ambiguous pause in the current strong up trend. It is unlikely that local markets will take too negative a lead from this pause given that the materials and financial sectors had positive sessions on US markets. However, the long weekend will provide short-term traders with a reason to for caution. Given the recent pick up in volatility, traders may prefer to reduce exposures given that there will be two international trading sessions before the local market re-opens.
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 Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.