Summary:

  • Republicans lose Alabama seat in the Senat which may make difficult for them to push new reforms next year, USD is the weakest currency among G10 overnight
  • Consumer Confidence rises in Australia supporting AUD
  • API reports a large drop in inventories, oil prices recover somewhat

 The US dollar reacted to the political developments overnight being the weakest currency among G10.  Stock markets in Asia were mixed as investors await central bank decisions in Europe and America for clues on the policy path for next year – Fed holds the meeting this evening, whilst ECB and BoE tomorrow. Moreover, AUD has continued its winning streak as Australian consumers are bowing with optimism and the API report suggested a large drop in inventories which has helped the crude prices to recover. 

 A special election for a US Senate seat saw the Republican majority diminished, which bodes ill for reforms next year, thus USD has been the weakest currency among G10 so far, however, the scale of the greenback sell-off has not been large. The Democrat’s Jones won in the Alabama Senate race, whilst the Republican’s Moore was expected to take it. It’s the first Senate win for the Democrats in Alabama since 1992, which underscores how surprising the result was. Jones will take the office no later than 3 January 2018. It puts a pressure on Republicans to speed up efforts to implement the tax bill before this date as their majority is to dwindle to 51-49 from 52-48 seats. Moreover, Moore’s defeat in one of the reddest states in the country could lower support among Republicans for the tax reform that will raise taxes on many of their own voters. This aspect poses a risk for USD as well as for Wall Street. 

On the flip side, the AUD has been the strongest currency across the board as the consumer confidence improved this month suggesting that consumption could get a boost in upcoming months. The Westpac Consumer Confidence Index came in at +3.6% m/m to 103.3 pts after a drop of 1.7% m/m in November. It’s the best result in 4 years and may mean that the index has bottomed out already.

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 AUDUSD has rebounded from a medium-term trend line. The pair could be headed now to 0.7629 handle. Source: xStation5

The last but not least, API report saw a large drop in oil inventories which propped up the crude prices. A 7.382mm oil draw exceeded expectations by the fat margin and it’s the biggest slide in 4 months. On the other hand, gasoline and distillates stocks rose respectively by 2.3mm and +1.5mm barrels. Now traders are waiting for confirmation of this data by DoE (the official report will be published at 3:30 pm BST).