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America carries on voting

Decision day, maybe

Americans who have not already voted for a president will have a final chance to do so today. Their choice will affect the value of the US dollar but how, and when? There a variety of opinions on the subject but no definitive answer.

Four years ago, an unexpected Republican win cost the USD an average of 0.7% on the day against the major currencies. Over the following week, it went up 2.2% and after a month it was 4.1% higher. A year on, the USD was on average unchanged and today it is 2.7% above its position on the morning of 8 November 2016. Over the four years, the USD has weakened – or the GBP has strengthened  – from $1.24 to $1.25.

The moral of this story is that to arrange FX positions in anticipation of a particular result tonight would be highly speculative. A more prudent, less precarious approach would be to cover any major exposure, not just to the dollar itself but to other currencies that might be caught in the crossfire. Bear in mind that the President has threatened to challenge the result if he loses, an outcome that could send the safe-havens higher.

 

Meanwhile back at the camp

Ahead of the potential excitement, investors must content themselves with the mundanities of economic data, political pronouncements and central bank policy adjustments. There were enough of those to keep them occupied in the last 24 hours.

Monday’s main statistical theme was the purchasing managers’ indices for manufacturing. Most of them came in ahead of forecast, if not necessarily higher on the month. The best Eurozone reading was Germany’s 58.2, a 31-month high, while the only sub-50 result was a 48.7 from Greece. Britain’s 53.7 was better than expected and UK business optimism was at its highest since January 2018. The matching PMI readings from North America put Canada at 55.5 and the States at 53.4.

In Parliament, the Prime Minister told MPs that the coming four-week lockdown would be “time-limited”. His promise failed to reassure business leaders at the virtual CBI conference, who heard from their leader that this lockdown would be tougher than the first: “We are heading into winter, a bleak midwinter.”

This morning, as expected, the Reserve Bank of Australia lowered its benchmark cash and three-year target rates from 0.25% to 0.1%. In his speech, the governor also said the RBA would buy $100 billion of national and regional government bonds over the next six months. The immediate reaction of the AUD was to weaken; it subsequently recovered to levels above its pre-announcement position.

 

Vote early, vote often

There is little on today’s agenda to distract from the US election. No UK ecostats or events appear on the list.

Swiss inflation came in at a tediously predictable -0.6% for October, with prices unchanged on the month. During the London session, investors will have to make what they can from South African business confidence, monthly US factory orders and vehicle sales, and New Zealand milk prices. Tonight brings NZ employment and Australian retail sales. There will be services PMIs from Australia and China.

That leaves the US election. Opinion polls put Democrat Joe Biden between four and 12 points ahead in the White House race, and simulations show him winning 89 out of 100 times after 40,000 simulations. It’s worth noting, however, that four years ago the election-eve opinion polls said Hilary Clinton would win.

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