Dollar may rise after U.S. election results put pressure

AMERICAN ELECTION, FED, DOLLAR, AUD, JPY, BANK OF JAPAN – DISCUSSION POINTS:

• US Dollar May Rise on Fed Outlook After Election Digests
• Asia Pacific stocks and S&P 500 futures indicate risk-based trading bias
• Trump campaign has yet to concede, BOJ’s summary of opinions is off

The US dollar digests recent losses as weekly trading opens. Price action appears relatively stable following confirmation over the weekend that former Vice President and Democratic candidate Joe Biden has prevailed over incumbent Republican President Donald Trump in this week’s presidential election last.

That Mr Biden would emerge victorious was heralded by the polls and to some extent assessed ahead of election day. Risk appetite strengthened as results poured in and seemed to confirm the likelihood of an outcome as expected, undermining the demand for refuge for the greenback.

THE US DOLLAR COULD INCREASE THE DIGESTED ELECTION RESULT ONCE

Tracking now appears to be decreasing as expected. This could pave the way for a rally in the benchmark currency as markets reflect on the implications of dropping accommodative extremes on the Fed’s policy outlook following the election and following last week’s tone of the FOMC.

While tightening is still not in sight, the benchmark interest rate path for next year involved in Fed Funds futures has steepened significantly. The slope of the yield curve followed suit. This may suggest that after the last episode of pro-risk USD selling, the currency may recover rate based support.

Chart created with TradingView

AUSTRALIAN AND NEW ZEALAND DOLLARS MAY INCREASE WITH STOCKS

Looking ahead to Monday’s trading session, a relatively thin supply on the economic calendar looks likely to keep the broader sentiment trends in the foreground. Asia-Pacific stock markets are cautiously tracking the upside and S&P 500 futures indicate the same is to come.

This is indicative of a risk slant that could favor cyclical currencies like the Australian, Canadian and New Zealand dollars over anti-risk alternatives like the USD and JPY. However, the Trump campaign has yet to concede and may still try to fight the election result, which is chilling investors.

The Bank of Japan’s summary of views at the October policy meeting went off without incident. The report repeated familiar platitudes, emphasizing vigilance over the adequacy of the stimulus mix and prolonged periods of negative price growth, but offered little actionable news for markets.

TRADING FX RESOURCES

— Written by Ilya Spivak, APAC Chief Strategist for DailyFX.com

To contact Ilya use the comments section below or @IlyaSpivak on Twitter