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Asian Session – Dollar up and euro down on policy divergence; Chinese inflation falls again

The US dollar edged higher in Asian trading on Tuesday as investors increase the odds that the Federal Reserve will raise interest rates in December. The heightened expectations follow Friday’s strong nonfarm payrolls data for October. Boston Fed President Eric Rosengren, who is known to be a dove in the Fed, said in a speech on Monday that December “could be an appropriate time for raising rates, as long as the economy continues to improve as expected”.
The greenback rose to 123.34 yen in late Asian session today, having touched a low of 122.97 yen on Monday.

Chinese inflation eased further in October with the CPI dropping to 1.3% year-on-year from 1.6% in September. Forecasts were for inflation to fall to 1.5%. The weak data raises expectations that Chinese authorities will announce further monetary and fiscal stimulus measures in the coming months to counter the disinflationary pressures.

The Australian dollar, which often serves as a liquid proxy for the Chinese economy, was mostly flat in Asian trading but rose slightly to 0.7058 against the US dollar in late session. The NAB business confidence survey also had limited impact on the aussie. The NAB business conditions index was unchanged in October at 9, while the business confidence index fell to 2 from 5 the prior month.

The euro was slightly weaker against the dollar on Tuesday, slipping to 1.0750 dollars as it came under pressure on rising expectations that the European Central Bank will cut its deposit rate further into negative territory at its December meeting. Political troubles in Portugal could also weigh on the euro if the country’s leftist parties win a vote that could oust the centre-right minority government. Shares in Portugal fell over 4% on Monday on the political uncertainty and the possible impact on passing through new reforms.

The pound was flat against the greenback in Asian trading at 1.5103 as it awaits Wednesday’s jobs data for further direction.

Crude oil prices firmed on Tuesday after the head of OPEC said that the market in 2016 will be more balanced. US oil futures were up 0.5% at $44.10 in late Asian trading, having falling sharply in the previous four trading days.

The rest of the day is looking relatively quiet with only French and Italian industrial production data for September to be of interest in European trading. During US session, October import prices may attract some attention.

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