CBA FX Strategy - NY Open
Newswire headlines reporting that 2 ballistic missiles had been fired in the Mediterranean and were heading towards the Eastern Med have been the main market-moving interest this morning. The news was reported by the Russian newswire RIA. The headlines triggered a knee jerk spike in the JPY and CHF around 9.50 am BST. However, there was no subsequent confirmation of the reports from other sources and RIA reported a little while later that the missiles had fallen into the sea citing an unidentified person in Damascus. There has been no comment validating the claims from western powers and some speculation that the missiles may have been for meteorological purposes. USD/JPY spiked down from around 99.70 to a low of 99.12, but has since edged back up to the 99.50 area. Equity indices likewise dipped but have since edged back higher. The message from this morning’s events is that markets will remain highly sensitive to news from the Syrian crisis. But for now there has been no confirmed military action.
Elsewhere AUD/USD has lifted following the RBA’s decision to hold the cash rate steady at 2.5% today. The main reason the AUD is getting a boost is the RBA did not stress the easing bias that was in place in the previous meeting minutes. In this regard, today's RBA statement is similar to last month’s statement, which also appeared to remove an easing bias. It was expected the RBA would reinsert a definitive easing bias after it was omitted from last month's statement, but then stressed in the subsequent minutes. Instead, in today's statement the RBA maintained a similar "bias" as last month (and the AUD rallied) that "the Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target". Australian swap rates are marginally higher. With specific reference to the AUD, the RBA maintained that it "remains at a high level". AUD/USD spiked to 0.9040, and has remained supported
around these levels through the European morning. The AUD should garner support over the next 24 hours from the combination of today’s RBA decision, improved risk sentiment in Asian equity markets, and the prospect of a decent Q2 GDP release tomorrow (9.30pm EST/2.30am BST).
USD consolidated in relatively quiet trade yesterday, reflecting the US Labor Day holiday. The US bond and equity markets were closed and there was no US economic data released. Advanced economy PMI’s continue to improve, as does China’s PMI, which are assisting commodity prices, equity markets, and assisting to offset simmering selected emerging market concerns. The regional US manufacturing indices suggest today’s US ISM manufacturing index may beat expectations centred on 54 points (10am EST/3pm BST).
USD/JPY has lifted over this week’s trade, mainly reflecting improved risk appetite and reduced emerging market fears. Another upward surprise to the US ISM will support USD/JPY.
We expect USD/JPY can hit 100.00 for the first time since late July by the end of the week.
USD/CHF showed little reaction to yesterday’s comments by the Swiss National Bank’s Vice
President, Jean-Pierre Danthine, that the EUR/CHF floor (cap on CHF) “isn’t there forever….it is there as long as it corresponds to monetary conditions” . Despite Swiss deflation ending in
July with annual inflation at 0.0%, we do not yet envisage the SNB will be willing to remove the current EUR/CHF floor, until there is at least a year of inflation. The current EUR/CHF floor has been in place for almost two years. EUR/CHF dipped to 1.2315 this morning following the missile headlines, but has also edged back higher through the morning. Swiss QII GDP grew by 0.5% QoQ taking annual growth to 2.5% YoY, a high since QI 2011.
GBP outperformed the EUR, USD and JPY yesterday, boosted by the UK manufacturing PMI’s lift to 57.2 in August, the highest since February 2011. The lift was driven by strong improvement in output and new orders components which are now at their highest level since
1994. Momentum in the UK economy remains positive. The next key UK data point is the August UK services PMI (Wednesday). As we noted in our Weekly Currency Views, we see upside risks to the consensus outlook for the UK services PMI and that the UK economic data should support GBP in the first half of the week. Beyond the data, the main focus will be on the September Bank of England (BoE) policy meeting (Thursday). Given the emphasis placed on the negative impact a premature tightening in financial conditions could have on the UK economic recovery, some of the MPC may be frustrated by market reaction since the announcement of forward guidance. The risk is the BoE MPC issues a post meeting statement designed to dampen market interest rates. When combined with a firmer USD outlook this week, GBP/USD may end to week back down towards 1.5365 (100-day moving average). That being said, the broadening positive UK dataflow suggests further near-term GBP outperformance versus the EUR looks likely.
NZD/USD has been buoyed by better risk sentiment so far this week, and was dragged higher by the AUD in the wake of the RBA decision today. Q2 value of building work put in place is the next key release (6.45pm EST/11.45pm BST). In addition, the latest global dairy auction takes place from 7am EST/12pm BST today. Dairy prices have been little affected by the Fonterra contamination scare, and trade disruptions have been minor. Today’s events should capture two key positive drivers in the NZ economy at present: strong dairy prices, and a buoyant construction sector. Over the remainder of the week, USD developments are likely to take over as the dominant influence on NZD/USD. We expect NZD/USD can press higher, but resistance is likely to come in around 0.7886, the 50-day moving average.
Upcoming Economic Calendar Highlights Important for Exchange Rates
USD – August ISM today, July trade balance (Wednesday); Fed Beige Book, ADP employment
(Thursday), non-farm payrolls (Friday).
AUD - Australia Q2 GDP (Wednesday); Australia July trade balance (Thursday).
EUR - Services and composite PMIs, second estimate of Eurozone Q2 GDP (Wednesday); ECB meeting Thursday.
GBP - August services PMI (Wednesday); BoE policy meeting (Thursday).
NZD – Global Dairy Auction (Today), Q2 Value of Building Work Put in Place (Wednesday), RBNZ OCR Review (12 September).
CAD – International Trade, Bank of Canada rate decision (Wednesday); August employment report (6 September).
JPY – BoJ meeting (Thursday); BoJ Monthly Economic Report (Friday).
CHF – CPI (Friday).