Dollar Bulls Continue on Rampage | Daily FX Commentary

• Aussie dollar slides to six-month low as markets favour Greenback ahead of FOMC;
• Sterling gains traction after Scottish referendum opinion poll;
• Greenback remains in demand driven by rate hike speculation.

As the Greenback continues to firm, the Aussie remained under pressure overnight as markets begin to price in a more hawkish FOMC next week. Burdened by falling iron ore prices and the threat of a reduced yield advantage as the Federal Reserve approach the end of their asset purchase scheme, the Aussie dollar fell to lows of $0.9112 during the London session. Unemployment data due for release at 11:30 AEST today will likely cause a stir following last month’s dismal drop in job creation. Due to material changes in the way the participation rate is calculated, we would expect to see elevated levels of unemployment remain around 6.4% with 15k jobs created in August. Given recent weakness in the local unit, missed forecasts could see the Aussie dollar test new 6-month lows.

As the Scottish ‘Yes’ camp continue to drive the pound, an opinion poll revealed overnight saw a leap of faith towards the pound bouncing from lows of $1.6051 against a firmer greenback. The opinion poll conducted by a Scottish newspaper placed the ‘No’ camp in front by 6% when excluding those who are still undecided. Sterling has managed to take a breath in recent trading session, however the bias remains very much towards the downside. Despite comments from the Bank of England that the result of the Scottish referendum will not influence their decision to raise interest rates, the market fails to believe this given the effects that an 18-month period of uncertainty and negotiation would have on the UK’s currency.

As markets continue to price in a more hawkish FOMC meeting next week, the US dollar remains firmly in demand in anticipation that a US interest rate hike is forthcoming. Traders have shrugged off missed non-farm payroll expectations and have viewed the numbers in a larger context. Given the string of labour market indicators pointing towards reduced ‘slack’ in US labour markets, combined with such aggressive divergence in monetary policy between the US, EU and Japanese central banks, markets are quite rightly pricing in a more hawkish FOMC at next week’s meeting. Ahead of the meeting, initial jobless claims and retail sales will likely cause a stir but we wouldn’t expect any modest negativity in the data to dampen such appetite for the greenback.