• Dollar falls while yen and commodity currencies rally The dollar weakened as investors continued to cut long positions ahead of the Thanksgiving holiday, while geopolitical tensions after Turkey downed a Russian warplane caused a flight-to-safety. Rising tensions and fears of an escalation between the two countries hurt the equity markets and pushed investors to shift their funds to the yen and to a lesser extent to the Swiss franc. The Russian President warned of “serious consequences”, which not necessarily mean a military response but point to the strong economic ties the two countries have. As a result, deteriorating economic conditions are likely to weigh further on the TRY and to the RUB, as the tensions increase between the two sides.
• In the meantime, the commodity currencies AUD, CAD and NZD performed well, in part to a minor rebound in oil prices. On top of that, the AUD gained further as RBA Governor Glenn Stevens dampened expectations for further rate cuts at the RBA policy meeting next week. He said “we've got Christmas, we should just chill out, come back and see what the data says." Given that the benchmark price of iron ore, one of Australia’s major exports, declined further, I believe that any advances in AUD/USD are likely to stay limited. I would prefer to exploit AUD strength against NZD.
• Today’s highlights: During the European day, Norway’s AKU unemployment rate for September is due to be released. The figure is expected to remain unchanged at 4.6%. The registered unemployment rate for the same month declined a bit, which could lead to a positive surprise in the AKU rate as well. Given that this data are outdated, we expect the market reaction to be minimal. In Sweden, the Riksbank publishes its Financial Stability Report and from France, we get the consumer confidence for November.
• In the US, we have a very busy day ahead of the Thanksgiving holiday. The headline and core durable goods orders are expected to have increased, after falling or stagnating for two consecutive months. The headline figure is forecast to have risen 1.5% mom, a turnaround from -1.2% mom in September, while durable goods excluding transportation equipment are estimated to be up 0.3% mom, a rebound from -0.3% mom previously. The focus is usually on the core figure, where a possible improvement could boost the greenback. Personal income and personal spending are expected to have risen at a faster pace than in September. Improvement in consumption for the first month of the year’s final quarter could be a sign for a rebound in the US growth rate following the slowdown in Q3. This could add to the growing body of evidence that the US economy is gaining momentum and may support USD. The yoy rates of the PCE deflator and core PCE for October are coming out as well.
• Initial jobless claims for the week ended Nov. 20 are expected to have declined slightly from the previous week. However, the 4-week moving average will rise if the forecast is met. The overall trend though still points to a strong labor market and I don’t expect a moderate increase to hurt the greenback or to alter expectations of a December rate hike. The preliminary US Markit service-sector PMI and the final University of Michigan consumer sentiment index, both for November, are also due to be released.
• In the late US session, New Zealand’s trade deficit for October is expected to decline a bit. This may prove NZD-positive.
• We have three speakers on Wednesday’s agenda: ECB Vice President Vitor Costancio, RBA Assistant Governor Guy Debelle, and UK finance Minister George Osborne speak.