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Analysts at Westpac, in a market wrap, noted that after lukewarm trade in Europe, risk appetite improved in the NY session, with optimism rising over US-China talks, including a possible Xi-Trump summit in November.  

Key Quotes:

“AUD/USD bounced to 0.7315. Today’s calendar is light, as it is for much of the week, ahead of the Fed’s Jackson Hole conference.”

“A resumption of Turkish lira weakness (-3.1%) was brushed aside in  Friday  London/NY trade. US equities remained supported by Q2 earnings and in late trade, a Dow Jones/WSJ story claiming that US and Chinese officials were, “mapping out talks to try to end their trade standoff ahead of planned meetings between President Trump and Chinese leader Xi Jinping at multilateral summits in November.”

This was supported by White House economic adviser Kevin Hassett, who talked up this week’s meeting between lower level US and China officials (in contrast to adviser Kudlow’s dismissive comments) and also sounded upbeat on NAFTA negotiations.”

“The US dollar lost ground on the optimism over trade talks. EUR/USD rose from 1.1380 to 1.1440, GBP/USD +30 pips to 1.2745 early  Monday. AUD/USD edged up to 0.7280 in the NY morning, then bounced to 0.7315 on the US-China story. Outperformer NZD/USD starts the week around 0.6640, up 0.8% overall. AUD/NZD ranged sideways between 1.1000 and 1.1040. USD/JPY did not follow risk sentiment higher, edging down -0.3% to 110.55.”

“The University of Michigan’s preliminary August consumer sentiment survey fell a larger than expected 2.6pts to 95.3 – its lowest  in eleven months, but a still historically elevated level of optimism. Less upbeat views on buying big-ticket durable items drove the index lower while negative news recalled on trade tensions continued to trend higher.

Canada July CPI was much stronger than expected, up 0.5%mth, 3.0%yr versus expectations for inflation to hold at 2.5%yr. Underlying inflation  however  was a touch softer than expected, 1.9%yr, so the Bank of Canada should not be too concerned by the highest headline inflation since 2011. Markets place around a 1/3 chance of the BoC hiking to 1.75% on  5 September. USD/CAD responded sharply to the data, sliding from 1.3140/50 to 1.3070. NAFTA headlines also helped CAD.”