Thursday 10 January 2019


The Dollar tumbled against a basket of major currencies on Wednesday evening, after minutes from the latest FOMC meeting revealed policymakers had adopted a more cautious approach towards raising rates.

Most policymakers expressed concern over the volatile financial markets, plateauing global growth, and ongoing trade tensions. With officials also believing that inflation remained muted, the US central bank could “afford to be patient” about further policy tightening. External and domestic risks have made the future path of interest rate hikes “less clear”, and this may end up fuelling expectation over the Fed taking a pause on rate hikes this year.

Appetite towards the Dollar diminished further following the cautious Fed minutes with prices sinking towards 95.20 as of writing. A solid breakdown and daily close below the 95.00 level could open a clean path towards 94.65 in the near term.

A dovish Fed was good news for emerging market currencies with the Chinese Yuan, South African Rand, and Naira among many others holding ground against the Dollar.  Attraction towards EM currencies is likely to be boosted further by optimism over US-China trade talks. While the improving market mood is a welcome development for emerging markets, the geopolitical risks weighing on global sentiment remain present. With Brexit-related uncertainty, chaos in Washington and lingering growth fears on the mind of many investors, EM currencies remain in the crosshairs.

In Nigeria, the Naira traded around 361N on the parallel exchange due to trade talk optimism and rising oil prices. Oil prices were elevated by Dollar weakness today while optimism over US-China trade negotiations easing tensions between the world’s two largest economies supported upside gains. While the commodity is seen extending gains in the near term amid the improving market mood, the upside remains limited by supply and demand dynamics. Oversupply fears coupled with concerns over falling demand are poised to create headwinds for oil bulls down the road. Depressed oil prices will continue impacting confidence over Nigeria’s ability to move ahead with its 2019 budget which pegged oil prices at $60.

A cautious Fed pushed gold prices back above $1,290 yesterday evening. While market optimism over US-China trade talks continues to weigh on the precious metal, dollar weakness and expectations over the Fed taking a pause on rate hikes are likely to keep prices buoyed. With rising geopolitical risks and global growth fears fuelling risk aversion down the road, the outlook for gold points to further upside. In regards to the technical picture, the precious metal is firmly bullish on the daily charts. A breakout above $1,290 is likely to encourage an incline higher towards the $1,300 psychological level.

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