Mid Term Elections are the dominating force in global markets this week. The results will potentially dominate the horizon of the US dollar for the rest of the year. Pollsters are forecasting a strong performance for the Democrats, with the likelihood of them taking the House, but pollsters have been dramatically wrong before. If assumptions of the elections are correct and the Democrats grab the house, it could lead to issues with budgets, and grid lock over the debt ceiling, issues that could cause US dollar downside. A surprise wave of Republican support would lead to an erratic dollar.
There is also the small matter of the Federal Reserve rate decision, although we don’t expect a move in rates on Thursday we do expect to be massaged into the prospect of yet another December rate hike.
However, it’s not just the mid-terms that are in focus, there is the small prospect of a China – US trade deal at the G20 at the end of November.
After poor growth numbers and terrible confidence numbers, the Eurozone is under a lot of pressure and the Euro should be too, however that’s not necessarily the case at the moment. The political tennis game between Italy and the EU has led to a degree of volatility in Euro pairs, which could be set to continue. The EU is walking a tight rope of whether to play hardball with the Italians and risk further discontent towards them, or concede and help the budget get pushed through. All scenarios spell Euro volatility. Domestically the calendar is full of PMI readings for investors to decipher, while Wednesday’s retail sales number will give us an idea on domestic spending amid the tension.
Brexit headlines continue to be the driving force of volatility for the Sterling, and there will be no change this week. Both the Sterling and UK rates are under the influence of Brexit, which was highlighted last week by Mark Carney’s inflation report projections. The Governor of the Bank of England stopped short on most projections, and especially on rates, stating that Brexit could change all the outlooks. A smooth transition is key to the Bank sitting on its hands and gradually raising rates.
Expectations continue to grow, and some believe a deal could be reached by November 21st. This speculation has helped to keep the Sterling strong against the US dollar. This week’s UK data could see a bit of that work undone, as expectations are that UK GDP this week will show that Brexit fatigue and uncertainty are hitting output.
It is set to be a calm week for Canadian markets with the domestic calendar looking quiet and the rate story put away, at least for now. The likely driver for the Loonie this week, especially USDCAD will be the US mid-term elections. A lot hinges on the prospect of more stimulating economic plans, if the Democrats win in the House, it could lead to the prospect of more stimulus falling. If this is the case it could lead to a brief upside move for USDCAD.
Tuesday’s Reserve Bank of Australia (RBA) meeting will be the big focus for the currency this week, but we do not expect a change in rates. In fact, expectations for rate movement and monetary policy in Australia show no signs of movement until May 2019, at the earliest. In addition to the RBA there is also the Chinese trade data that will be closely followed by those with Australian Dollar risk. The Aussie had jumped on the expectations of a new trade deal between the US and China. The Chinese data will show what affect the US tariffs over the summer have had on the Chinese economy.
The Reserve Bank of New Zealand meets this week, and the expectation for further dovish rhetoric after August’s meeting remains the same. In August Governor Orr’s statement pushed out rate hike expectations to 2020 sending the Kiwi lower. The uncertainty of domestic data, and the country’s reliance on US events means many are still undecided on the next overall direction the bank will move rates in. Regardless, we do not expect a movement this week. The NZ jobs report will be released this week, but we do not expect this to have a significant impact.
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Equities hit with the inflation stick; Saudi assurance provides oil with shelter from the storm; USDJPY hedge plays building; Gold appears prone