Russia Election Probe Slams the Dollar

Earlier in the Day:

Stats were on the lighter side through the Asian session today, with the Kiwi Dollar under the spotlight. New Zealand’s October Business PMI eased slightly, with producer input prices rising at a slower pace in the 3^rd quarter.

While the numbers were on the softer side, the Kiwi Dollar was saved from another hammering thanks to a pullback in the U.S Dollar through the morning.

The good news for the Asian markets was the PBoC’s liquidity injection, the Central Bank injecting the most cash into the system since January of this year.

The Nikkei, which is most susceptible to risk aversion, coughed up a gain of 1.82% from earlier in the day to close with just a 0.20% gain, as demand for the Yen built through the session. We saw the Yen move from an intraday low ¥113.14 to a¥112.4 high, as the markets responded to news hitting the wires of the U.S President’s election campaign having been subpoenaed in October by the Special Counsel. The special Counsel’s investigation into Russia’s involvement in the election campaign is ongoing in the background and will need to continue to be monitored, though we have yet to hear of any possible Trump – Russia collusions.

The ASX200 managed to close out the day in positive territory, with the Hang Seng leading the way, up 0.85% at the time of writing. The liquidity injection failed to spur the China markets, with the CSI300 up just 0.15.

We saw the Aussie Dollar tumble through the late part of the session, as risk aversion hit. The Aussie Dollar slumped 0.53% from its intraday high $0.7608 to $0.7568 at the time of writing, the decline coming as carry trades reversed with investors moving into the safe havens.

The gold bulls may have been packing their bags following progress on the tax reform bill overnight, but were given a new lease of life as demand for the safe havens built. Gold Spot stood at $1,282.14 at the time of writing, up 0.28% on the day, having treaded water through the early part of the session.

The Day Ahead:

Following a hectic few days on the economic data front, it’s a day of reflection, with no material stats scheduled for release out of the Eurozone this morning. We saw inflation continue to fall well short of the ECB’s objective in October, while economic growth continued to impress. The numbers suggest that the ECB is unlikely to do much more than the announced tapering through much of next year, until Draghi’s anticipated pickup in inflation appears.

Ahead of the European open this morning, the EUR surged to an intraday high $1.1822 before easing back to $1.1803 at the time of writing. The U.S administration continues to be the biggest influence on the financial markets and the currencies in particular, with the EUR particularly sensitive to risk sentiment. The news of the U.S election campaign being subpoenaed led to the EUR rally earlier this morning.

ECB President Draghi, who is scheduled to speak later this morning, may come to the rescue, but unless there is some particularly dovish talk on policy, he’s unlikely to be of much influence to the downside for the EUR.

For the Pound, it’s a rest day from a week of heavy stats. Bank of England Governor Carney had provided the markets and UK businesses with comforting words on the Bank’s role during and after Brexit on Thursday, which was a positive. The real threat to the UK economy for now however, continues to be a possible ousting of the UK Prime Minister. The Tory rebels clearly have little regard for the voters that elected the Tory Party into office, nor is there any apparent concern on the possible ramifications of a hard or “no deal” Brexit. The infighting and rebellion has weighed heavily on the effectiveness of the UK government at the EU negotiating table and things appear to be getting worse.

At the time of writing, the Pound was up 0.25% at $1.3228, the gains coming, not only in response to Carney’s comfort blanket, but the Dollar’s reversal through the early part of the day.

Across the Pond, there’s never a dull moment with Trump at the wheel. The good news was that the Senate voted the Tax Reform Bill through to the House of Representatives on Thursday. The markets also responded to Republican Sen. Ron Johnson stating that he was optimistic that his issues with the bill could be resolved, having said that he would not vote in favour of the Bill just a day before.

While the Dollar found support from the progress on the tax reform bill, the Dollar shifted into reverse this morning. News hit the wires of Special Counsel Robert Mueller having issued subpoenas to some of the U.S President’s top campaign officials last month.

The Dollar Spot Index tumbled to an intraday low 93.508 on the news before recovering to 93.651 at the time of writing, down 0.3% on the day.

For the day ahead, economic data out of the U.S is limited to October’s housing sector stats. Building permit and housing start figures are scheduled for release and, with little else due for release, may provide some support. The Housing sector has been considered a barometer on the economic conditions in the U.S, with demand coming from a continued tightening in the labour market.

The stats may have an influence, but any noise from Capitol Hill on tax reforms or on the ongoing investigations into the U.S President’s election campaign will likely have the greatest influence. We would expect the risk aversion resulting from this morning’s news to ease through the day, though it may not be enough to save the Dollar from a second week of losses.