Australian GDP Numbers Disappoint with Markets Focused on North Korea and U.S Service Sector PMI Numbers Later Today

Earlier in the Day:

Key stats through the Asian session were limited to Australia’s GDP numbers for the 2^nd quarter, the Australian economy growing by 0.8%, falling short of a forecasted 0.9% increase, weighing on the Aussie, which slipped from $0.80197 to $0.79944 upon release of the numbers. While the numbers disappointed, the economy certainly accelerated from the 0.3% growth in the 1^st quarter, with commodity prices and recent data out of Australia and China supporting sustained growth through the 3^rd quarter.

We heard from RBA Governor Lowe on Tuesday, who had talked up the outlook for the Australian economy, wage growth, inflation and the outlook on inflation, brushing aside any concerns over AUD appreciation, coming at a moment of weakness for the U.S Dollar.

At the time of the report, the AUD was down 0.18% at $0.7982, with concerns over AUD appreciation likely to peg back the AUD amidst the current risk aversion.

Asian equities continued to see red through the session, with the Yen gaining a further 0.06% against the Dollar ahead of the European session, persistent U.S Dollar weakness likely to not only complicate trade terms for the Japanese economy, but also other trade dependent economies including that of Australia.

The Day Ahead:

The risk off sentiment through the Asian session is likely to continue through the European and U.S sessions today, as the markets look ahead for key stats out of the U.S this afternoon that could ease the negative sentiment towards the Dollar.

Tuesday’s July factory orders were quite dire, the only positive to take from the numbers being the 1% increase in orders for non-defence capital goods excluding aircrafts, which is considered to be the proxy for business spending.

With the Dollar under pressure off the 3.3% slide in factory orders, the largest in almost 3-years, the markets may have been hoping for FOMC voting members Brainard and Kashkari to come to the rescue. The Dollar bulls would have been disappointed, with concerns over soft inflation weighing heavily on the prospects of a final rate hike of the year, the markets already having been relatively dovish on monetary policy following last week’s poor inflation and labour market data.

By the end of the week, we will have a far better idea of where FOMC members sit with regards to a rate hike before the end of the year, with members Mester, George and Dudley, scheduled to speak, though the markets will need to wait until tomorrow and Friday for further FED forward guidance on what to expect for the remainder of the year.

For the day ahead, there will be hopes of a Dollar revival through the European and U.S sessions, with service sector PMI numbers scheduled for release out of the U.S. Forecasts are for the market’s preferred ISM survey figures to be Dollar positive, though how far the Dollar can climb remains to be seen as sentiment towards the Dollar will be dependent on market risk appetite, the markets looking elsewhere over concerns of ongoing tension between the U.S administration and North Korea.

At the time of the report, the Dollar Spot Index was up 0.05% at 92.299, having started the Asian session in the red, though we will expect the Dollar to be under further pressure ahead of today’s stats and perhaps more importantly, a scheduled Trump speech in North Dakota, the U.S President looking to make a more concerted push for tax reforms, which would include a cut in the corporate tax rate to 15%.

Across the Pond, there are no material stats out of the UK to provide direction for the Pound with stats out of the Eurozone limited to Germany’s July factory orders, which fell by 0.7% compared with a forecasted 0.3% rise, weighing on the EUR. Any moves by either the EUR or the Pound now will largely hinged on market appetite for the Dollar, as the markets look ahead to tomorrow’s ECB monetary policy decision and press conference.

At the time of the report, the EUR was up just 0.05% at $1.192, while the Pound was down 0.08% at $1.3023, the recent weak data out of the UK likely to weigh on the Pound through to today’s stats out of the U.S.