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Hard to Bet Against USD Despite Midterms and Rough Start to November

 

FX markets lacked volatility on Tuesday ahead of US midterm elections, the results of which will begin to trickle in after 7pm EST. November typically represents the best month of the year for USD and recent losses arguably offer a grab-it-now opportunity to get the currency at improved exchange rates.

U.S. Dollar News, Forecast

With most analysts believing that the Democratic Party will have won control of the US House of Representatives by Tuesday’s end, FX traders around the world may find themselves waking up on Wednesday to a less valuable US dollar. A Democrat victory would likely weaken prospects for further fiscal stimulus and, as a consequence, prospects for further dollar appreciation.

Despite a rough start to November, and regardless of election results, now would, though, be a tough time to start betting against the world’s reserve currency.

November is typically a time of dollar strength, with monthly gains averaging 1.8 percent over the past 10 years. Only twice in the past decade has the dollar failed to finish in the green on November’s final day; its most impressive gains have been against the Australian dollar, euro and Japanese yen.

AUD to USD - 3 month chart to 06 Nov
AUD/USD - 3 month chart to 06 Nov

With November 2018’s first four trading days already showing a dollar loss of more than 2 percent against several of the FX majors (losses are twice as much against emerging market currencies like the South African rand and Turkish lira), one might argue that good value is being offered, and that the time for exchanging local currency into dollars is now, before they become more expensive.

In other news, the Reserve bank of Australia left interest rates unchanged at 1.5 percent on Tuesday afternoon, as widely expected.

Despite recent data showing a deteriorating housing market, softer-than-expected inflation and a dip in Chinese manufacturing activity, the RBA said it remains optimistic.

“Forecasts for [Australian] economic growth in 2018 and 2019 have been revised up a little,” RBA Governor Philip Lowe said in a statement, and “business conditions remain positive.”

As a result, the Australian dollar, which has broken an important technical downtrend, again approaches $0.725, from which it was repelled on Friday.

GBP to USD - 3 month chart to 06 Nov
GBP/USD - 3 month chart to 06 Nov

The British pound dominates among European FX in terms of excitement for currency traders. It has been the most directional over the past week, with traders seemingly confident that a Brexit deal will be reached.

Sterling is now 3 percent higher against the dollar since reaching a 2-1/2-month low of $1.27 a week ago. When last seen, the pound was quoted at $1.309 and at a 4-1/2-month high against the euro of €1.1467.

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