Rising Geo-Political Risk Drives Support for the Yen and Dollar

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, with stats limited to August building approval figures out of Australia.

For the Aussie Dollar, building approvals tumbled by 9.4% in August, according to the ABS, which was far worse than a forecasted 1.2% rise and continued the downward trend following July’s 5.2% slide.

• The tumble was attributed to a 17.2% decrease in approvals for private dwellings excluding houses, while approvals for private houses were also in decline, down by 1.9%.
• The value of total building approved fell by 1.3%, marking a 9^th consecutive monthly fall.

The Aussie Dollar moved from $0.71745 to $0.71696 upon release of the figures, before rising to $0.71709 at the time of writing, down 0.24% for the session.

Elsewhere, the Japanese Yen, was up by 0.09% to ¥113.55 against the U.S Dollar at the time of writing, supported by market jitters over Italy and, not only its fiscal policy plans, but also some chatter of being better off with its own currency. For the Kiwi Dollar, things were not much better, the risk off sentiment weighing, the Kiwi down 0.27% to $0.6575 at the time of writing.

In the equity markets, the Nikkei hit reverse, down by 0.56% at the time of writing, with risk aversion weighing in the early part of the day, while the ASX200 managed to stop the rot, up 0.32%, with support coming from the big-4 that had been under the hammer of late. For the Hang Seng, the slide continued early, the Hang Seng down 0.34%, the ongoing trade war with the U.S and weakening economic data out of China doing the damage alongside risk aversion stemming from geo-political risk rising out of the EU.

The Day Ahead:

For the EUR, economic data scheduled for release out of the Eurozone is on the heavier side and includes September service sector PMI numbers out of Italy and Spain and finalized PMI numbers out of France, Germany and the Eurozone, with the Eurozone’s August retail sales figures also due out.

While we can expect the EUR to show some response to the stats, the ongoing concerns over Italy ahead of the coalition government’s budget submission to Brussels mid-month continues to be a concern and may well overshadow the numbers should there be more chatter from members of the coalition.

One other factor to consider and monitor will be chatter from the Oval Office, the EU now in the U.S administration’s sights on trade, the last trade meeting with the EU now some time ago.

At the time of writing, the EUR was down 0.06% to $1.1541, the Italian Budget and noise from the Oval Office remaining the key risks to the EUR, with today’s stats to provide some direction at the time of release.

For the Pound, it’s the last of the 3 September PMI numbers, with September’s service sector PMI scheduled for release. While the manufacturing and construction PMIs delivered mixed results, it’s down to the more significant component of the UK economy to provide the markets with some guidance on where the UK economy is heading going into the 4^th quarter. Forecasts are for a slightly softer number, anything weaker than forecasts likely to rile the Pound.

Outside of the stats, the British PM will be wrapping up the Tory Party Conference with a speech later today, which will influence alongside Brexit chatter that has yet to inspire the markets, the prospects of a “no-deal” remaining a real possibility as both sides continue to flex their muscles.

At the time of writing, the Pound was down 0.02% to $1.2976 with Brexit chatter, noise from the Tory Party Conference and today’s service sector PMI being the key drivers through the day.

Across the Pond, it’s a busy day on the data front, with key stats scheduled for release including the market’s preferred ISM non-manufacturing PMI numbers for September and the Markit survey finalized service sector PMI number for September, which are preceded by September’s ADP nonfarm employment change figure.

While the ISM non-manufacturing PMI will be of influence, the ADP number will need to be in line with or better than a forecasted 185K to avoid a Dollar sell-off in response to the figures, positive ADP numbers likely to give the ISM number a greater influence on the day.

Outside of the stats, FED Chair Powell and FOMC members Brainard and Mester are scheduled to speak late in the U.S session, policy chatter likely to provide direction for the Dollar, Powell and then Brainard to have greater influence.

Added support for the Dollar has come from a spike in geo-political risk as Italy and Greece look to go into the ring with the EU on budgets, with lingering trade war jitters also there to consider.

At the time of writing, the Dollar Spot Index was up 0.04% to 95.545, with today’s stats and noise from Italy and the Oval Office to consider through the day.

For the Loonie, there are no material stats scheduled for release, which should leave the Loonie relatively quiet through the day barring a release of disappointing U.S crude oil inventory numbers out of the U.S that would weigh.

At the time of writing, the Loonie was down 0.03% to C$1.2827 against the U.S Dollar.