- USD mixed against basket of currencies as durable goods declined
- BOE Governor Mark Carney expected to announce rates to remain low
- New Zealand trade deficit largest in 10 months (NZ$774 million)
USD – The U.S. dollar is mixed against its major counterparts today after a week that saw the dollar index, DXY, increase .16% to 81.361. Orders for U.S. durable goods declined more than forecasted in July after three months of increases, indicating that manufacturing may be slowing. The benchmark 10-year treasury declined from almost the highest level in two years as investors weigh whether the economy is strong enough for the Fed to slow its bond-buying program. Most expect the bond-buying to be reduced in the Fed’s upcoming September meeting, most likely to be trimmed by $10-15 billion per month from current levels of $85 billion per month. Because several Fed members have been quoted as saying that their decision will be data-driven, this week’s releases of consumer confidence Tuesday, jobless claims Thursday, and the Chicago purchasing manager index on Friday all take on more importance and scrutiny.
EUR – The euro is coming off a strong week in which it rose 0.35% against the dollar, at one point temporarily breaking through the key 1.3400 level and reaching a six-month high. Capital outflows from emerging markets into safe-haven currencies along with robust Eurozone Manufacturing PMI data are some of the main contributors to the euro rally. The single currency is trading slightly lower today, currently hovering around 1.3370, after the ECB gave mixed signals about another potential rate cut at last weekend’s annual Jackson Hole symposium. Weidmann, a member of the ECB and head of the Bundesbank, added his own thoughts this morning, stating that monetary policy alone cannot solve the current crisis. With very little economic data released today, markets will turn their attention towards German unemployment and CPI numbers, both set to be released this Thursday.
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GBP – The pound has come off its highs against both the dollar and the euro as investors are betting that the Bank of England Governor Mark Carney will use a speech on Wednesday to affirm his intention to hold borrowing costs at an all-time low. Despite this move lower, the pound remains the best performer amongst the 10 developed nation currencies tracked by Bloomberg over the past 6 months. Aside from Carney’s speech on Wednesday, this week brings consumer confidence on Friday, which is supposed to show improvement over last month’s reading of -16.
JPY – The JPY strengthened for the first time in four days against the USD as orders for U.S durable goods fell more than forecast in July after three months of increases. At Jackson Hole this weekend, Bank of Japan Governor Kuroda said that the BoJ’s bond purchases have started to “exert effects” on the economy. Kuroda said the push has helped boost stock prices and restrain bond yields, while supporting bank lending and bolstering confidence among consumers and businesses. Although the volatile equity market is weighing on JPY, the yield spread widening between the US and Japan is supporting JPY. Japan CPI will be released this week and if we see the CPI (ex food and energy) moving higher, market expectations of lower real yields in Japan will help encourage renewed selling of the yen as a sign of success in “Abenomics”.
Commodity Currencies – The Australian dollar is trading back above 90 U.S. cents after dropping back below that figure last week on reduced risk appetite for higher-yielding currencies. The Aussie is down 10 percent this year, representing the worst performing currency among the 10 developed-nation currencies according to Bloomberg. In addition, over half of polled market analysts expect an additional interest rate cut by the end of the year, lowering the borrowing costs from the current 2.5% to 2.25%. Meanwhile, the New Zealand dollar has gained 0.7% after dipping below 78 U.S. cents on expectations of the Fed tapering its bond-buying program and data showing New Zealand’s largest trade deficit in 10 months. Imports topped exports by NZ$774 million in July compared with an expected shortfall of NZ$16 million. The Canadian dollar is down versus the majority of its major counterparts and fell 1.8 percent last month against nine other developed nation currencies as commodity currencies all suffered over that span.
RMB – The renminbi is flat in today’s trading as the PBoC raised the currency’s fixing rate by .05% today to 6.1680 and after a reported increase in foreign direct investment. The Ministry of Commerce reported last week that the foreign direct investment growth clocked in at 24% in July. Recent signs have pointed towards stabilization of growth after China, the world’s second largest economy, had seen reduced growth projections for 2013 and 2014. Supporting this view is the preliminary PMI reading for August, which is anticipated to come in at 50.1, above the line representing expansion after a reading of 47.7 in July. This week is very light on data out of China, with no market moving announcements expected.
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