Dollar Holds Firm Ahead of Fed Decision; Oil Rises on Saudi Refinery Attack

Market Wrap-Up: Fed Decision, Oil Supply Risks, and Diverging Currency Moves

The US dollar held near a two-week high on Wednesday as markets awaited the Federal Reserve’s (Fed’s) policy decision, with futures indicating a 91% probability that the central bank would leave interest rates unchanged. Investors are focusing on policymakers’ comments for signals about the potential path of interest rates in December.

The US Dollar Index (DXY) rose 0.3% on Tuesday to 102.40, its highest level since 14 October. The yield on the US 10-year Treasury bond was unchanged at 4.9967%. The euro held at USD 1.1129, while the British pound remained at USD 1.3307. The dollar was last 0.1% lower against the Japanese yen at 157.81.

The New Zealand dollar fell as much as 1.7% to USD 0.5585 after the Reserve Bank of New Zealand (RBNZ) unexpectedly held its policy rate at 2.75%. A Reuters poll had found that 22 of 27 economists expected a rate increase.

The Australian dollar rose 0.1% to USD 0.7035 following inflation data showing that inflation was 1.3% in the third quarter, compared with 0.6% in the previous quarter. The trimmed mean measure of core inflation rose 1.0% during the quarter, while the annual rate stood at 3.6%, above the Reserve Bank of Australia's target range.

Oil prices rebounded on Wednesday after a reported attack on a Saudi Arabian refinery renewed concerns about potential supply disruptions in the Middle East. Brent crude futures rose USD 1.48, or 1.3%, to USD 115.36 a barrel, while US West Texas Intermediate (WTI) crude rose USD 1.22, or 1.22%, to USD 101.12.

Yemen’s Iran-aligned Houthis said they had struck Saudi Arabia’s largest oil refinery with a missile. Saudi authorities had not immediately confirmed the attack. Oil prices had fallen by nearly USD 2 on Tuesday amid hopes for progress in Middle East peace talks.

Gold rose approximately 1% on Tuesday as lower oil prices eased inflation concerns ahead of the Fed meeting. Spot gold climbed 1% to USD 4,055.14 an ounce, recovering after touching an intraday low of USD 3,987.14. However, expectations of interest rates remaining elevated continued to weigh on the outlook for the non-yielding metal.

Equity markets also advanced on Tuesday, supported by optimism surrounding artificial intelligence-related investment announcements and anticipation of earnings from major US technology companies. The Dow Jones Industrial Average rose 0.03% to 52,377.57, the Standard & Poor’s 500 Index (S&P 500) gained 0.60% to 7,722.60, and the Nasdaq Composite advanced 1.18% to 26,477.81.

Investors will focus on today’s interest-rate decisions from the Fed and the Bank of Canada (BoC). Markets will assess the Fed’s policy statement for signals about the interest-rate outlook for December, while the BoC’s decision and forward guidance will offer further insight into Canada’s monetary-policy outlook. Both decisions could influence currency-market movements, particularly the US dollar and the Canadian dollar.

DXY

Key Takeaways

·         The Fed’s policy guidance could reshape market expectations for December, influencing the dollar’s near-term direction.

·         A more hawkish-than-expected tone could support the dollar, while less hawkish guidance could weigh on it.

Technical Outlook

·         Daily Bias: Bullish

·         Support: 102.14

·         Resistance: 102.94

XAU/USD

Key Takeaways

·         The prospect of tighter US monetary policy in December remains a downside risk for gold.

·         Changes in inflation expectations and the anticipated interest-rate path could influence gold’s response to the Fed’s guidance.

Technical Outlook

·         Daily Bias: Bullish

·         Support: 3,988

·         Resistance: 4,070

WTI Contract for Difference

Key Takeaways

·         Renewed supply-disruption risks in the Middle East could sustain a risk premium in oil prices.

·         Progress in peace talks could ease supply concerns, leaving prices sensitive to changes in the geopolitical outlook.

Technical Outlook

·         Daily Bias: Bearish

·         Support: 99.43

·         Resistance: 102.85

USD/CAD

Key Takeaways

·         The relative policy outlooks of the Fed and the BoC will be central to the pair’s response to today’s decisions.

·         Any shift in the expected interest-rate differential could alter the balance between the US dollar and the Canadian dollar.

Technical Outlook

·         Daily Bias: Bullish

·         Support: 1.4000

·         Resistance: 1.4082

Calendar Watch 

·         Bank of Canada (BoC) Interest Rate Decision: Markets will assess the BoC’s policy stance and accompanying guidance for signals about the Canadian dollar’s outlook and the future path of interest rates.

·         Federal Reserve (Fed) Interest Rate Decision: Investors will look for signals about the future direction of US monetary policy, particularly the December interest-rate outlook and its implications for the US dollar and Treasury yields.

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