A Dollar Pullback on Hopes of a NAFTA Deal or More Pain to Come?

Earlier in the Day:

Economic data released through the Asian session this morning was limited to July trade data out of Australia, as the global financial markets continued to be gripped by trade fever, Trump’s 6^th September deadline rattling markets going into this morning’s session.

For the Aussie Dollar, following the better than expected GDP numbers for the 2^nd quarter, the trade surplus narrowed from A$1.873bn to A$1.551m in July, which was better than a forecasted narrowing to A$1.4bn. According to figures released by the ABS:

• Goods and services credits fell A$362m (-1%) to A$36,070m, the decline attributed to non-monetary gold exports falling A$189m (-10%), non-rural goods falling A$138m (-1%) and rural goods falling by A$76m (-2%).
• The import of goods and services rose by A$24m to A$34,519m, with the rise attributed to intermediate and other merchandise goods rising by A$605m (+10%) and non-monetary gold imports rising by A$69m (+11%), with services up A$109m (+1%). The gains were offset by an A$429m (-6%) fall in the import of capital goods and an A$329m (-4%) fall in the import of consumption goods.

The Aussie Dollar moved from $0.71968 to $0.71966 upon release of the figures, before easing to $0.7196 at the time of writing, up 0.04% for the session.

Elsewhere, the Japanese Yen was up 0.25% to ¥111.28 against the U.S Dollar, a softening in the Dollar in the early hours providing much needed support, with the Kiwi Dollar up 0.12% to $0.6602, some risk appetite returning to the markets on hopes of a deal between the U.S and Canada.

In the equity markets, it was a mixed bag, with the CSI300 and Hang Seng kicking off the day in positive territory, while the ASX200 was down 0.95% at the time of writing, tech and mining stocks contributing to the early slide. Things were not much better for the Nikkei, which was down 0.42%, with a stronger Yen and tech sell-off in the U.S weighing through the early part of the day.

The Day Ahead:

For the EUR, economic data scheduled for release this morning is limited to July factory order figures out of Germany. Following a slide in orders at the end of the 2^nd quarter, any weakness in orders at the start of the 3^rd quarter would be a negative for the EUR, particularly following the latest manufacturing PMI number that came in at 55.9 in August, compared with July’s 56.9.

Outside of the stats, an escalation in the ongoing trade war between the U.S and China and any lack of progress between the U.S and Canada would be of influence, as will any chatter from Italy through the day.

At the time of writing, the EUR was up 0.14% to $1.1646, with geo-politics and today’s stats out of Germany to provide direction.

For the Pound, with no material stats scheduled for release through the day, focus will remain on Brexit, with talk of Germany and the UK finding common ground on Brexit having given the Pound a boost on Wednesday to partially reverse Monday’s tumble.

At the time of writing, the Pound was up 0.15% to $1.2925.

Across the Pond, economic data is on the heavier side for the day ahead, with key stats scheduled for release including August ADP nonfarm employment change figures, July factory orders, August service sector PMI numbers, the markets preferred ISM figures to have a greater influence, with 2^nd quarter nonfarm productivity and unit labour cost and finalized durable goods order numbers also due out that will likely have less of an impact on the Dollar.

While the nonfarm and ISM non-manufacturing PMI will have the greatest influence from a data perspective, Trump’s 6^th September deadline on rolling out tariffs on an additional $200bn worth of Chinese goods may well overshadow the stats, demand for the Dollar expected to jump should Trump give the green light.

There could be some respite should the U.S and Canada manage to close out NAFTA negotiations, with suggestions of a deal by the weekend seeing a pullback in the Dollar in the early hours of this morning.

At the time of writing, the Dollar Spot Index was down 0.20% to 94.998.

For the Loonie, with the BoC interest rate decision out of the way, focus shifts back to trade talks and whether an agreement can be made on NAFTA before the end of the week, the Loonie on the slide this week to $1.31 levels in spite of a relatively hawkish Bank of Canada.

Economic data scheduled for release this afternoon is limited to July building permit figures that are unlikely to have a material impact on the day.

At the time of writing, the Loonie was up 0.03% to C$1.3175 against the U.S Dollar trade talks the key driver through the day.