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GBP: The UK has enjoyed a run of decent data and the PMIs have been no exception. Both the manufacturing and more so the construction data were firmer than expected, with the market looking for a modest increase from 56.9 to 57.4 on today’s services numbers.

USD: Just the non-manufacturing ISM today, with a rise from 52.2 to 53.1 expected. This would take the headline number back to levels last seen in April of this year. The dollar would likely get some benefit from data firmer than expected.

AUD: The market is now fully expecting a rate cut from the RBA on Tuesday of 25bp, which would take the cash rate to 2.50%. The main volatility risk comes from no change and also the statement on a rate cut, in particular whether they indicate further possible easing ahead.

Idea of the Day

The market was looking for clarity at the end of last week from the US employment report and unfortunately it was not offered.   A lower unemployment rate, but smaller than expected increase in headline payrolls means that the debate on whether the US is likely to start scaling back bond purchases as early as the September FOMC meeting remains just as open as ever.

This is likely to see the dollar’s sensitivity to data surprises rise, so stronger than expected data pushing the dollar higher and vice versa. Note that the 1-month rolling correlation between the dollar index and the index of data surprises moved back into positive territory towards the end of last week, reflecting this  change in dynamic.

Latest FX News

AUD: Retail sales data were weaker than expected overnight, data coming in flat, compared to expectations for 0.4% increase.   The Aussie was initially weaker on the news, but has since regained the lost ground to trade just below the 0.8900 level.

NZD:  Gapped lower at the Asian open on the back of news that China has reportedly stopped imports of milk powder from New Zealand on health concerns. Dairy is New Zealand’s top export and China is a key market for such products, which is why the NZD was hit, initially touching the 0.77 area before recovering, although the gap from the 0.7835 close on Friday has yet to be filled.

USD: Weaker on Friday as headline payrolls fell to the disappointing side.   As discussed, sensitivity to data surprises is increasing which should keep the dollar on its toes during August.

EUR: Once again the single currency has been showing the resilience that often comes from being the world’s second most liquid currency with sterling, the yen and especially the Aussie taking the strains vs. the US dollar.

Further reading:  Federal Reserve may approach tapering more cautiously in the coming months