FX Markets Monthly Outlook – November 2017

Politics continued to remain in the forefront for the month of October. This time, however, focus turned to Asia as the Japanese Prime Minister Shinzo Abe called for snap elections. Japan held the elections on the weekend of October 24 which saw the incumbent win with a strong majority.

In New Zealand, after a long wait, the election results threw a surprise as the Labor Party joined hands with the populist NZ First party to form the government.

The New Zealand dollar fell sharply as the new government made its intentions clear that included making changes to the RBNZ’s price stability mandate. Full employment is also expected to be chalked into the central bank’s mandate. The NZ First party also announced its preference for central bank intervention and a weaker exchange rate for the New Zealand dollar.

In Europe, Spain dominated the news wires as the ongoing tussle between authorities in Catalonia and the Spanish government eventually resulted in Spain revoking the autonomous governance for Catalonia.

The month ahead: November 2017

The month of November is expected to remain calm with the major central bank decisions set for December. The Federal Reserve’s meeting is expected to be a non-event although rumors of President Trump picking a new Federal Reserve chair continue to drive the markets.

The Bank of England will be the next central bank that is expected to hike interest rates, although this is expected to be a one and done deal in the near term. OPEC’s November meeting will put the focus back on the oil prices and the supply glut as member nations signal that production cuts will remain in place.

Here’s a quick preview of the main events to look forward to in November.

 

Bank of England set for a dovish rate hike (Nov 2^nd)

The Bank of England will be the first central bank meeting early in November. According to a wide poll of economists, the BoE is expected to hike interest rates by 25 basis points this November. This will bring the interest rates in the UK to 0.5%.

Although technically a rate hike, the Bank of England is expected to maintain a dovish stance. This comes especially as weakness in growth amid the Brexit uncertainty continues to play in the background. On the other hand, inflation was seen rising strongly with wages failing to catch up. As a result, the interest rate hike is expected to be symbolic with further rates hikes subject to how the economy will fare.

Further rate hikes from the BoE are likely to come by at a gradual pace but is subject to numerous factors including the economy and the trade deal in a post-Brexit world. BoE officials are likely to address the impact of inflation as well. However, with the British pound trading somewhat better off than in previous months, inflation could potentially slow in the coming months.

 

OPEC Meetings (Nov 29^th)

The OPEC member nations will be meeting on November 29 as Saudi Arabia hopes to reach a consensus among other partners to secure the future of oil prices. Saudi’s oil minister Falih reportedly said that it was possible for the oil cartel to reduce supply which requires Russia, the largest non-OPEC member to be on board as well.

The current supply cuts are expected to run its course until March next year. Although Russia has expressed its desire, there has been no strong commitment to the potential deal just as yet. Earlier in October, Falih spoke with his Russian counterpart Alexandar Novak and said that he was looking forward to reaching a consensus with Russia ahead of the November OPEC meeting.

Only last week, Saudi Arabia once again maintained its view saying that OPEC will likely maintain the production cuts until oil supply falls to its five-year average among the industrialized nations. Saudi’s oil minister also said that demand for oil globally could grow by 45% by 2050 despite the increase in the push for renewable energy.