Oil prices slipped further on concerns over supply surplus after new US projections released on Monday, showed production from the big three US shale companies should carry on growing at over 100k barrels per day into January. Benchmark West Texas Intermediate crude for January delivery fell below USD 63.00 a barrel, while Brent crude oil dipped to just above USD 65 a barrel on these developments. It looks to us that the decline in oil prices is likely to continue, particularly against the background of a slowing Chinese economy and stagnating European economy and continued high US domestic production.
The dollar strengthened against the high-yielding and commodity currencies after a speculation that the Fed officials are considering to shift their tone at their next week policy meeting. An article from WSJ said that the FOMC members are considering to remove the reference that they will keep interest rates low for a “considerable time”. Expectations of a “hawkish” Fed following the strong employment data are likely to keep the dollar strong especially as the alternatives within the G10 become less attractive.
NAB business confidence index
Overnight, National Australia Bank (NAB) business confidence index for November declined to the lowest level since July 2013. The results of the survey prompted NAB to change its interest rate prediction to two cuts of 25 bps in 2015 from the Reserve Bank of Australia, or for the Bank to remain on hold until 2016. The Aussie extended its losses amid these news and fell to a 4-year low. On top of that, China, Australia’s biggest trading partner, showed weak domestic demand through Monday’s trade figures with plunging imports and slowed exports, piling more pressure on AUD. The subdued growth seen in Australia in the recent months, triggered mainly by the falling iron ore prices, has pushed AUD/USD down 14% from its peak in June. I expect weakening fundamentals to weigh on the Aussie and if the decline in commodity prices continue, the pair could reach our next support of 0.8100 in the not-to-distant future.
UK industrial production
As for today’s events: In the UK, industrial production for October is expected to have decelerated from the previous month. The decline in the industrial production rate could raise concerns about the slowdown in UK’s recovery and put GBP under selling pressure.
In the US, only secondary importance data are coming out. The NFIB small business optimism for November is expected to have increased fractionally and to have remained near its highest level since October 2007. While this indicator is not particularly market-affecting, it’s well worth watching because of the Fed’s emphasis on the labor market. Small businesses employ the majority of people in the US. The Job Opening and Labor Turnover Survey (JOLTS) report for October is forecast to show that the number of job openings have increased marginally. Following last week’s strong employment data, this is likely to keep the dollar supported. Wholesale inventories for October are also coming out.