• Dollar regains momentum on Fed-hike bets The dollar index, which tracks the USD against six major counterparts, rose to its highest level since mid-April as investors shifted their focus from the Paris tragedy to Fed’s rate hike expectations. Later in the day, the US CPI data for October is due to be released with investors eager to see a modest rise in the inflation rate. Following the astonishing surge in the NFP for October and the overall strong employment report, even a fractional improvement in the data is likely to amplify the case for a December rate hike and strengthen the greenback further. In the adverse scenario of a disappointing figure, the dollar could give back some of its recent gains.
• Overnight the Reserve Bank of Australia released the minutes of its most recent policy meeting. At this meeting the Bank kept official interest rates unchanged amid signs of improvement of business conditions over the past year and a somewhat stronger growth in employment. Although in the minutes the Bank said that low inflation may afford scope for further easing of policy, the prospects for an improvement in economic conditions had firmed a little over the recent months. As a result, it was appropriate to leave the cash rate unchanged at this meeting. Within this context, AUD/USD was little changed as the minutes had a similar tone with the statement accompanying the rate decision. We maintain our bearish AUD view because the surrounding structural conditions remain unchanged. China is facing an economic slowdown and the Australian economy is still in the process of rebalancing.
Elsewhere, New Zealand’s 2yr inflation expectations for Q4 declined to 1.85% from 1.94% previously. This added to the soft data coming out from the country and increased expectations for another rate cut at their December meeting. The focus now turns to the GlobalDairyTrade auction later today, where prices look set to head lower. NZD/USD fell below the psychological barrier of 0.6500 and is poised to head lower if we see another fall in the dairy prices.
• Today’s highlights: During the European day, the German ZEW survey for November is coming out. The current situation index is expected to see a modest decline, while the expectations index is expected to have risen to 5.5 from 1.9. Last month, the expectations index plunged to 1.9 from 12.1 as the Volkswagen scandal coupled with the weak growth in EM deteriorated the economic outlook for Germany. Therefore, a rebound in expectations seems normal after such a plunge. In my view, even if the common currency reacts positively on these data, I would expect any rebounds to remain short-lived and I would treat them as renewed selling opportunities.
• From Norway, we get the GDP data for Q3. The forecast is for Norway’s GDP to have risen 0.2% qoq, a turnaround from -0.1% yoy the previous quarter. This, alongside the acceleration in the country’s inflation rate towards the target of its central bank, gives space to Norges Bank to remain on hold again at its policy meeting next month. However, the renewed slump in oil prices and expectations of a slowdown in the mainland GDP dragged by lower investments in the oil sector, NOK is poised to underperform its US counterpart, in our view. As a result, we would treat any near-term NOK strength following the GDP data as providing renewed selling opportunities.
• In the UK, the spotlight will be on the CPI data for October. The headline figure is expected to have fallen 0.1% yoy, at the same pace as in September, while the core rate is expected to have stayed at 1.0% yoy. In its quarterly inflation Report, the Bank downgraded its medium-term growth and inflation forecasts, while it noted that it sees risks slightly to the downside for inflation to reach their target in two years. As a result, a disappointment in the CPI data is possible, something that could push further back expectations of a rate hike by the BoE, and is likely to put the pound under renewed selling pressure.
• From the US, besides the CPI data for October, we get the industrial production for the same month. It is expected to have risen a bit, a turnaround from September. The NAHB housing market index for November is also to be released.
• We have three speakers scheduled on Tuesday. ECB Executive Board member Sabine Lautenschlager, Fed Governor Jerome Powell and Norges Bank Governor Oystein Olsen.