Oil Extends Decline as Rising U.S. Production Weighs

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On Monday, oil prices prolonged declines, pulled down by indications of growing production in the United States that  would partially offset output cuts by the Organization of Petroleum Exporting Countries and other producers.

After President Donald Trump presented immigration curbs that generated criticism at home and abroad, uncertainty over the outlook for U.S policy also broadly influenced  the financial markets.

Oil trading was quiet with some Asian countries, including China, on holiday for the Lunar New Year. After the opening bell on Monday, the delivery of NYMEX crude for March declined 27 cents at at $52.90 a barrel.

Global benchmark Brent crude oil prices declined 25 cents at $55.26 a barrel at 1010 GMT, while U.S. crude futures fell 8 cents to $53.09.

The number of active U.S. oil rigs increased to the highest since November 2015 the previous week, according to Baker Hughes data, indicating  that drillers are taking advantage of oil prices above $50 a barrel.

The Organization of the Petroleum Exporting Countries and other producers, including Russia, agreed to reduce production by nearly 1.8 million barrels per day in the first half of 2017 to relieve a two-year supply overhang.

“We are in wait-and-see mode, I suspect at the moment. Oil has reached a fair value equilibrium level given the current supply and demand outlook,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.

“Until we get anything to really disrupt that, we may not see too much change,” he said, adding the market may draw some comfort from official OPEC figures for January production.

However,  U.S. oil output has been increasing, with the International Energy Agency forecasting total U.S. production growth of 320,000 barrels per day (bpd) in 2017 to an average of 12.8 million barrels per day bpd.

“The rise in U.S. output should not be unexpected,” ANZ bank said in a note.

“However, we expect the reductions being made by OPEC will far exceed any rise in the U.S. and quickly reduce the global inventory that has been built up over the past two years,” it added.

Hedge funds and money managers boosted bullish wagers on U.S.crude oil to the highest level since mid-2014, the Commodity FuturesTrading Commission (CFTC) data showed on Friday, as agreed output cuts by the world’s top producers began to eat into a global glut.

In addition, on Sunday, President Donald Trump justified  his move to ban entry of refugees and people from seven Muslim-majority nations and stated the United States would continue issuing visas for all countries in the next 90 days as he faced increasing criticism at home and abroad and new demonstrations in U.S. cities.

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Dollar Inch Up, Markets Await Trump News Conference

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On Wednesday, the greenback inched higher  against a basket of major currencies in advance of a news conference by U.S. President-elect Donald Trump in which he is anticipated to spell out more regarding his plans for the economy.

The  dollar index increase 0.2% to 102.18 (DXY).

The greenback rally generated by Trump’s surprise victory in the November election has shown indications of fading, as the index has gone from a 14-year high of 103.82 scaled on Jan. 3 to a low of 101.30 over the previous  week.

The euro declined 0.1% at $1.0545 after brushing a 10-day peak of $1.0628 overnight.

The greenback firmed 0.3% to 116.100 yen. It had suffered two days of losses against the safe-haven Japanese currency.

“Currency pairs, settled into a narrow range ahead of Trump’s news conference – his first since the election – which is due to start at around 11:00 EST (1600 GMT) neared, according to the report.

“I did not expect the Tokyo session to be this quiet,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. “It reflects the level of caution prevailing in the market before Trump’s appearance.”

“During the past two months,anticipations that the Trump administration would enact economic stimulus gauges backed by massive fiscal spending have taken Wall Street to record highs, U.S. debt yields to levels unseen since 2014 and the dollar index to the 14-year high, according to the reports.

“Against that backdrop, financial markets are keen to see how Trump will follow through on campaign pledges.”

“The dollar is set to resume the Trump rally if he provides specifics of stimulus measures, notably those related to tax cuts, which appear achievable,” stated by an strategist.

“On the other hand, the market also focuses on potential risk factors, like Trump taking a tough stance against China. That could prompt the dollar to fall against the yen.”

Somewhere else in the markets, sterling plunged 0.1% to $1.2168 to inch back towards a two-month low of $1.2107 set overnight. This week, uncertainties about the terms of Britain’s exit from the European Union have kept the currency under heavy pressure.

After popping up to $0.7385 overnight, the Australian dollar was flat at $0.7372, its highest since mid-December. This week, the U.S. dollar stall and increase in iron ore and coal prices have strengthened the  Aussie this week.

After touching a four-week peak of $0.7048 on Tuesday, the New Zealand dollar held steady at $0.6987.

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US Dollar Takes Breather, Investors Worries About Fed Rates Outlook

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On Wednesday, the greenback took a break as investors watched to whether the Fed Reserve will indicate any acceleration in the pace of future rate hikes to deal with a projected ramp up in fiscal spending under the President elect  Donald Trump.

In its policy meeting ending later in the day, the Fed Reserve is all but sure to increase its interest rate objective by 0.25 percentage point to 0.50-0.75%, which would be just the 2nd rate hike since the financial crisis in 2007-08, following the tightening last December.

“The markets think a rate hike is a certainty so the focus is on the outlook for next year. I think they will maintain their previous projections to raise rates twice next year, but if they turn more hawkish, the dollar will test its upside again,” said Shinichiro Kadota, chief FX strategist at Barclays (LON:BARC).

The dollar index compared to a basket of six major currencies  (DXY) become stable approximately 101.05 in early Asian trade, having slipped from 101.78 touched early on Monday.

The euro <eur=>traded slightly changed at $1.0628, off  Monday’s one-week low of $1.0525.

Compared to the yen, the greenback traded at 115.20 yen, backing off  a bit from Monday’s 10 month high of 116.12 yen.

Some participants were willing to take profits from the dollar’s massive rally of approximately 10% against the yen since the Nov 8 U.S. election.

Anticipations that Trump will reduce taxes, increase fiscal spending and increase U.S. development over the short-term lifted U.S. bond yields and stock prices, making the greenback  more attractive.

Inflation is also expected to heat up if Trump moves to implement his more controversial campaign possibilities, like deporting illegal immigrants and striking tariffs, further additional boosting U.S. bond yields.

Even though, many investors had long believed that Fed Reserve will increase rates really slowly and carefully, specifically under dovish Chair Janet Yellen, Trump’s surprise election victory the previous month has significantly shaken up that assumption.

On Tuesday, the two-year U.S. debt yield increase to a 6 1/2-year peak and U.S. money market futures are pricing in nearly two rate hikes next year.

“That is a sea change from before the election, when they were not fully pricing in even one rate hike in 2017.”

Commodity-linked currencies were supported by strong increases in oil costs after the Organization of Petroleum Exporting Countries (OPEC) and some of its competitors touched their first agreement since 2001 to jointly reduce production to challenge global oversupply.

On Tuesday, the Australian dollar <aud=d4>traded at $0.7494, having reached a near one-month peak of $0.7524.

The Aussie also inched near its March high of 86.66 yen (AUDJPY=R), a break of which could open a way for a test of above 90 yen touched the previous year.

The Canadian dollar raised at C$1.3135 per U.S. dollar, after having increased to as high as C$1.3102 to the dollar on Tuesday, an eight-week peak.

Russian rouble <rubutstn=mcx> was the biggest winner in the previous few sessions from rallying oil prices, which increase 5.45% over the past week compared to the dollar to hit a 16-1/2-month peak.

“The Russian currency is the best performing currency since Trump’s upset,” according to the reports.

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