Dollar steadies as market
leans towards Clinton win
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[November 08, 2016]
By Patrick Graham
LONDON
(Reuters) - The dollar steadied after initial losses on Tuesday as
investors bet on victory for Hillary Clinton in the U.S. presidential
election that would avert a widely predicted slide for the greenback if
rival Donald Trump were to win.
Markets broadly have turned away since the weekend from the Trump-driven
"risk-off" plays that knocked the dollar last week, helped by an
all-clear in an FBI investigation of Clinton's use of personal email
while secretary of state.
A Trump victory would come as a shock, as the market is pricing in less
than a 30 percent chance of that happening. But investors were still
mindful of the precedent of Britain's referendum on EU membership in
June, which confounded the polls by delivering a shock vote for Brexit.
More broadly, a Trump victory would be expected to drive capital into
the perceived security of the Japanese yen and Swiss franc, and to a
lesser extent into the euro. Both fell against the dollar in morning
trade in Europe.
"We've seen the dollar supported this morning, with expectations for the
election dominating," said Clara Leonard, an FX strategist with French
bank BNP Paribas in London.
The dollar, steadily on the rise in recent months, dipped just over 2
percent against the basket of currencies that measures its broader
strength after a surge for Trump in the polls 10 days ago.
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Data from exchange-traded funds provider ETF Securities showed its
mostly retail client base had moved $51 million out of long positions in
the dollar - or bets on it to rise - in the past month. Last week's
outflow was the biggest since early July, it said.
The dollar index was flat on the day on Tuesday at 97.585. It was up
around a quarter of a percent at 104.76 yen and steady against the euro
at $1.1040.
"Versus the yen the market pricing is for a 3-4 percent fall on a
surprise outcome," said Josh O'Byrne, a currency strategist with U.S.
bank Citi in London.
"All the volatility is priced on that side ... but it doesn't feel like
it will have quite as much of an impact as the Brexit vote, at least for
G10 currencies."
Sterling sank by more than 10 percent in the aftermath of Britain's vote
to leave the EU.
CHINA WEAKNESS
Elsewhere, a bigger than anticipated dip in China's exports and imports
knocked as much as a third of a percent off the Australian dollar,
pointing to weak domestic and global demand in the biggest buyer of
Chinese commodities.
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Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese
100 yuan banknotes are seen in this picture illustration, January
21, 2016. REUTERS/Jason Lee/Illustration/File Photo
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China's renminbi was also nearing 6.80 per dollar <CNH=> and is expected
to suffer badly if Clinton wins.
"The China economy remains stagnant,"said Masashi Murata, senior
currency strategist at Brown Brothers Harriman in Tokyo.
"The renminbi is likely to continue to drop against the U.S. dollar and
the euro due to capital outflows and the negative outlook for the
Chinese economy."
Japanese Finance Minister Taro Aso said on Tuesday that Tokyo would need
to respond to currency market moves if results of Tuesday's U.S.
election were to cause a sudden spike in the yen.
"I won't comment on results of other country's elections. But if it were
to affect currencies, we would need to watch and respond, as stability
in currencies is always important," Aso told reporters after a cabinet
meeting.
(Additional reporting by Atul Prakash in London and Tokyo bureau;
editing by Mark Heinrich)
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