The Aussie has been the worst performer against the US dollar in Asia, amid the Westpac consumer sentiment dropping by 3.9% month-on-month in December.
The yen consolidated above the 115.00 against the US dollar as the Tankan hinted at a softer capital expenditure in the fourth quarter. The recent data also printed a clear divergence between large and small manufacturers’ business outlooks, mainly caused by the cheapening yen. In fact, expectations of further depreciation in the yen have better profited Japanese multinationals compared to smaller, domestic businesses and should continue to do so. The industrial production in October remained flat.
Asia took over a positive market, as the US stocks renewed record on dovish Federal Reserve Fed expectations. However, the sentiment turned flat into the afternoon session. Nikkei gave back earlier gains. Money flew into utilities (+1.64%); while financials (-0.50%) remained behind the curve heading into the FOMC’s monetary policy decision. Energy stocks (-0.97%) sold off as oil retreated by 1.34%.
FTSE futures eased by 0.23% and diverged negatively compared to better performing DAX (+1.02%) and CAC (+0.90%) futures.
Both the FTSE and the DAX are expected slightly lower at the open. FTSE is expected to open 8 points lower at 6960 pence, while the DAX is seen 19 points softer at 11276.
G10 majors were mostly quiet in Asia. The EUR/USD traded in the tight range of 1.0622/1.0642, the GBP/USD remained rangebound in between 1.2641/2.2665.
The Swiss franc (+0.08%) and gold (+0.13%) were better bid, as risk averse investors turned flat into the Fed’s decision announcement.
The Federal Reserve is expected to announce a 25 basis point increase in the Fed funds rate later in the day. This interest rate move is being priced in since immediately after Donald Trump’s presidential victory. Therefore, no surprise is expected regarding the likely rate action today. Yet, the accompanying statement could trigger some volatility, as it will set the primary tone for the future of the US monetary policy and will certainly not be as hawkish as priced in by the fixed income and the currency markets after Trump’s victory and on the run up to this week’s meeting.
Instead, the FOMC's statement could be fairly balanced, therefore, the possibility of disappointment in Fed hawks’ camp is a major downside risk in the US dollar and the US yields. If, as expected, the Fed sounds too cautious, or less hawkish than expected regarding the future of US monetary policy, the correction sell-off in the US dollar and the US sovereigns could be strident.