GBP/USD daily chart, July 12, 2018

The AUD Spikes as Focus shifts to the BoE and the ECB

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, with key stats limited to July core machinery orders out of Japan and August employment figures out of Australia.

For the Japanese Yen, core machinery orders surged by 11% in July, month-on-month, coming in well ahead of a forecasted 5.6% rise, whilst reversing June’s 8.8% fall with interest. Year-on-year, orders rose by 13.9%, which came in well ahead of a forecasted 4.7% rise following June’s 0.3% increase.

According to figures released by the Cabinet Office:

  • Manufacturers’ orders rose by 11.8%, reversing most of June’s 15.9% fall, while non-manufacturing (exc. Volatile orders) rose by 10.9%, reversing June’s 7% decline.
  • The jump in the manufacturing sector was attributed to increased orders from the chemical sector, up 119.5%, F&B up 60.5% and the textile sector, up 87.9%.
  • Orders from overseas rose by 6%, bouncing back from June’s 12% fall.

The Japanese Yen moved from ¥111.228 to ¥111.229 against the U.S Dollar upon release of the figures, before easing to ¥111.37 at the time of writing, down 0.10% for the session. While the numbers were a huge positive for the outlook towards the Japanese economy in the 3rd quarter, concerns over planned talks between the U.S and Japan on trade and the effects of the ongoing trade war between the U.S and China on global demand for goods and services will remain a concern for the Japanese government.

For the Aussie Dollar, An additional 44k jobs were added in August, which was better than a forecasted 15k rise, following July’s revised 4.3k decline, according to figures released by the ABS.

  • There was a net increase of 33.7k persons in full-time employment, with part-time employment rising by 10.2k.
  • Over the last 12-months, full-time employment increased by 202.1k, while part-time employment rose by 104.3k.
  • The employment to population ratio increased by 0.1 percentage points to 62.2%, while up by 0.5 percentage points year-on-year.
  • The unemployment rate held steady at 5.3%, in line with expectations, while the participation rate increased by 0.2 percentage points to 65.7%.

The Aussie Dollar moved from $0.71779 to $0.71895, upon release of the figures, before easing to $0.7189 at the time of writing, up 0.28% for the session.

Elsewhere, the Kiwi Dollar was down 0.14% to $0.6555 at the time of writing, giving up some of Wednesday’s gains, though the good news for now is that $0.64 levels may be avoided should China agree to resume talks with the U.S.

In the equity markets, a mixed start to the day saw the Nikkei find support off the back of the jump in machinery orders in July, up 1.03%, while the ASX200 saw red again, down 0.52% at the time of writing, the big-4 banks on the reverse following gains through the earlier part of the week.

For the CSI300 and Hang Seng it was a vastly different story early in the session, with gains of 0.87% and 1.65% respectively, the upside coming on hopes that the U.S and China will return to the negotiating table in a bid to avert a full blown trade war.

The Day Ahead:

For the EUR, economic data scheduled for release out of the Eurozone today is limited to finalized August inflation figures out of Germany and France, the stats unlikely to be having too much influence on the EUR, with the markets focusing on this afternoon’s ECB monetary policy decision and press conference.

The annual rate of core inflation sat at $1% in August, according to prelim figures released late last month, sitting well below the ECB’s 2% target. With economic headwinds circling as the U.S continues on its trade warpath, Draghi will be quick to remind the markets that any move towards policy normalization is reversible, with the ECB able to shift on policy should the need arise. A spike in the EUR is something he would likely want to avoid.

At the time of writing, the EUR was up 0.06% to $1.1633, support coming ahead of the ECB policy decision and press conference.

For the Pound, it’s a quiet day on the data front, with no material stats scheduled for release out of the UK, though it’s not going to be a quiet day for the Pound, with the BoE to make its monetary policy decision this afternoon.

Few surprises are expected, though any dissent in the wake of last month’s rate hike could give the Pound a boost. It will ultimately come down to Brexit chatter however, with the deal or no-deal outcome of great significance to market sentiment towards the BoE’s monetary policy outlook.

At the time of writing, the Pound was down 0.04% to $1.3040.

Across the Pond, key stats scheduled for release through the day include August inflation and the weekly jobless claims figures.

Following softer August wholesale price inflation figures released on Wednesday, any softer numbers this afternoon would certainly influence market sentiment towards a December rate hike, a September move largely priced in, while the initial jobless claims figures are unlikely to provide many surprises to influence the Dollar.

Outside of the data, the U.S and China trade war remains a key driver for the Dollar, with news hitting the wires of the U.S administration reaching out to China to resume trade talks contributing to the Dollar’s demise on Wednesday.

At the time of writing, the Dollar Spot Index was up 0.01% to 94.813.

For the Loonie, stats scheduled for release are limited to July new house price figures that are unlikely to have any impact on the Loonie, the markets likely to focus on a resumption of NAFTA talks today.

At the time of writing, the Loonie was down 0.09% to C$1.3010 against the U.S Dollar.