USD Remains Elevated but Draghi could Spark Volatility

USD

The U.S. dollar the traded in a mixed direction overnight but remains in favorable ranges against the majority of its peers.  Indeed, the U.S. dollar remains within striking distance of its best level since July against the Euro, 31 years against the sterling, and 14 years versus the Swedish krona.

The dollar has benefited from rising expectation of an interest rate hike in the U.S., bolstered by stellar economic data.  The greenback has also found support as markets comes to terms with the likelihood Hilary Clinton will become the next President of the United States as recent poll show her pulling away.  Clinton is viewed as a continuation of President Obama and markets like continuity.  Barring a game-changing event the election is now unlikely to spark currency volatility.

This morning’s economic showed that jobless claims remain near the best level in 40 years.  Later this morning, existing home sales are expected to rise 0.4% in September, up from -0.9% in August.

EUR

The Euro is largely unchanged this morning after the European Central Bank kept its current policy on hold.  The move to hold interest rates and its quantitative easing program was expected by most analysts.  Nevertheless, the common currency remains near its weakest level since July versus its American counterpart.

ECB President Mario Draghi will give a press conference this morning which is likely to spark volatility.  Traders will be looking for clues as to if and when the ECB will begin tapering its 1.7 trillion euro QE program.  The majority of economists polled expect that the ECB won’t change the parameters of its QE plan until its December meeting so today’s press conference could end up a non-event.

AUD

The Australian dollar was the biggest loser overnight, falling 0.7% against the U.S. dollar on the back of weak economic data.  Australian employers unexpectedly cut nearly 10K jobs last month, failing to meet expectations of a 15K increase.

The poor jobs report has stoked speculation that the Reserve Bank of Australia will cut interest rates at their next meeting on November 1st.  According to swaps markets, the likelihood of a cut is at 17%, up from 14% yesterday.