USD Weaker As Traders Await Wednesday’s FOMC Minutes

The US Dollar starts the week on a softer footing following the gains we saw last week against a backdrop of better-than-forecast US data and hawkish Fed commentary. US markets are offline today for Presidents’ Day, contributing to the slower start for USD. Looking across the week, the big focus for USD traders will be the FOMC meeting minutes on Wednesday which pose upside risks for the Dollar and therefore might act as a further headwind to equities prices.

Key Factors for Today

• USD weaker on Monday – US markets offline for national holiday
• Equities see mixed start with outlook better in UK and Europe than US
• AUD leads the way in FX – RBA minutes due tonight
• Metals and oil rebound – Russia set to make big output cuts

Coming Up

Quiet data sheet today with North American markets offline.

• EUR - Consumer confidence
• NZD – PPI Output
• AUD – Flash manufacturing & services PMIs

Equities See Mixed Performance Amidst USD Rift

Equities markets continue to see some division with US stocks suffering more at the hands of a stronger Dollar as hawkish Fed expectations grow. In the UK and Europe, stocks have been boosted by falling prices and lower inflation, contributing to a healthier economic outlook. The FOMC minutes midweek pose a threat to broader equities sentiment, however. If the Fed’s discussions were seen as being more hawkish than some players expected, this will likely add to the growing speculation around a potential .5% hike in March, leaning on equities sentiment near-term.

AUD Back in Demand Ahead of RBA Minutes

 A softer start for the US Dollar and a better opening for risk markets has favoured a return to demand for higher-yielding currencies. AUD leads the pack across the European open on Monday, also supported by hawkish RBA expectations on the back of the recent, unexpected lift in inflation. Tonight, the minutes from the last RBA meeting will be in focus as traders try to glean any clues as to how the bank is likely to act in March.

Metals & Oil Rebound

In the metals and commodities space, both gold and silver have started the week with a firm upside tone, extending the gains seen on Friday. With USD likely to remain under pressure today there is room for both metals to advance higher. However, Wednesday’s FOMC minutes will be the key test with risks of fresh declines if USD rallies in response to the minutes. Crude prices are looking better at the start of the week also following the declines we saw last week. Crude futures fell almost 7% across the week as a stronger USD and demand concerns weighed on sentiment. News that Russia is set to slash oil output by around 0.5. million barrels per day from next month is helping lift prices on Monday.