A Dollar Bounce Ahead of a Busy Week on the Stats

With a busy week ahead on the economic calendar, the markets will be jostling for position through the day, with stats on the lighter side through the European and U.S sessions.

Macroeconomic data through the Asian disappointed this morning, with China’s July private sector PMI figures showing slower productivity in both the manufacturing and services sectors, though the numbers were not bad enough to throw the Asian markets into a sell-off, with the ASX200 and CSI300 holding onto gains through the release of the numbers.

The IMF had last week revised upwards China’s growth forecasts and for now, the markets are buying into the more optimistic outlook.

Private sector credit figures out of Australia this morning were on the rise, coming in ahead of forecasts, which may be good news for the economy, but perhaps bad news for the RBA who will make its interest rate decision tomorrow morning. Household debt has been outpacing wage growth and the latest pickup in private sector credit will add to the RBA’s concerns over household debt levels, which has removed any prospect of further monetary policy easing, despite soft inflation, with consumer price increases through the 2^nd quarter having slowed from the 1^st quarter, according to figures released last week.

We can certainly expect the RBA to remind the markets of the negative effects of a stronger AUD on the Australian economy, AUD strength impacting demand for Australian goods and raw materials, on which the economy is dependent, though with relatively positive economic data out of Australia of late, it may prove challenging for the RBA to pull the AUD back to $0.76 – $0.77 levels, today’s softer PMI data out of China having had little impact on the AUD through the early part of the Asian session.

Looking back to Europe and the U.S, with no material stats out of the UK this morning, the markets will focus on prelim July inflation figures from the Eurozone, with this morning’s German retail sales figures having come in ahead of forecasts, though with a relatively muted impact as appetite for the Dollar picked up through the early part of the day.

Any hint of an acceleration in the Eurozone’s rate of inflation and we can expect the EUR to find support, with inflation the ball and chain for a shift in monetary policy, as the ECB continues to talk about soft core inflation and the need for continued accommodative monetary policy to drive inflation towards the ECB’s close to 2% objective.

At the time of the report, the EUR was down0.12 % at $1.1737 as a result of this morning’s bouncing Dollar, with the direction of the EUR hinged on this morning’s inflation figures.

Macroeconomic data out of the U.S this afternoon includes pending home sales figures for June, together with July’s Chicago PMI. Forecasts are for pending home sales to be on the rise by 1%, recovering from the decline in May, whilst the Chicago PMI is forecasted to show sector growth easing slightly. The markets may be less interested in today’s numbers however, with it being nonfarm payroll week, focus more on inflation, personal spending, wage growth, payroll and the nationwide private sector PMI numbers due out through the rest of the week.

It’s hard to see the Dollar getting out of its rut at the moment, with an acceleration in the U.S economy through the 2^nd quarter having provide little comfort, as the U.S President and noise from Capitol Hill is now considered the biggest weight on the Dollar, the markets having priced out the prospects of a more hawkish outlook on FED monetary policy some time ago.

The reality is that Trump is unlikely to be able to deliver on any of the campaign pledges, with the exception of a weaker Dollar and, until sentiment towards the capability of the U.S administration improves, the real Trump trade is now in motion, one that many would have expected in the wake of the surprise presidential election victory last November.

Equity markets are able to brush aside the political drama that is unfolding on Capitol Hill, but it’s an altogether different story for the Dollar, with the EUR now appearing to be the market’s sweetheart, as economic growth prospects remain rosy, with all the talk of the rise of populist governments across member states having died a quick death following Macron’s election victory earlier in the year.

The Dollar Spot Index was up 0.19% at 93.434 at the time of the time of the report, with opportunistic trades providing some much needed support, the Dollar considered cheap, but with the possibility of Trump’s presidency unravelling further as a result of the investigations into his pre-presidency business dealings, more declines could well be on the horizon, with talks of the EUR hitting $1.20 levels not as farfetched as the talks of the Dollar hitting parity with the EUR late last year.