CBA FX Strategy - NY Open
The European morning has again been very quiet. French industrial production contracted in by 0.6% MoM in July, Italian GDP growth was revised lower a tenth to -0.3% QoQ in QII. EUR/USD ground lower through the morning to a low of 1.3235, EUR/GBP also eased a little lower to 0.8430. The USD has also edged up generally through the morning, USD/JPY in particular pushing up over 100 early in the session. Equity markets are having a positive morning, AUD/USD has been up to a high of 0.9290 so far this morning helped along by decent Chinese economic news (see below.).
The USD has still softened up a touch this week as participants continue to re-evaluate the risk of a September FOMC tapering. Also weighing on the USD over recent sessions are developments regarding Syria. Concerns over an imminent attack on Syria appear to have eased, which has helped oil prices ease, and removed some of the safe haven demand for USD and JPY. Comments from the Russian Government who proposes placing any Syrian chemical weapons under international control and destroying them was a catalyst. The Syrian Foreign Minister has stated "Syria welcomes the Russian proposal out of concern for the lives of the Syrian people, the security of our country and because it believes in the wisdom of the Russian leadership that seeks to avert American aggression against our people." But the focus on Syria may pick up once again over the next 24 hours. US President Obama is scheduled to make a
case for military intervention to American citizens in a nationwide broadcast (9pm Washington time on 10 Sept, 2am BST or 11am AEST 11th September). President Obama is also seeking congressional authorisation for “a limited proportional” military strike. It appears Obama still has a lot of work to do to convince US lawmakers to support an attack on Syria, and the perception an attack is less likely is calming markets. But if the situation in Syria re-ignites in coming days, it will cause a re-firming of the USD, JPY and send oil prices back up towards recent highs.
AUD/USD is gradually moving higher towards our near-term target of 0.9400 as market participants price in a reduced risk of tapering of asset purchases by the FOMC next week. We expect the FOMC to taper its monthly asset purchases from USD 85 billion to USD 75 billion though deliver a dovish statement. AUD received a boost to 0.9290 through the morning from Chinese data for August. Industrial production (+10.4%YoY) and retail sales (+9.5%YoY) were both slightly better than expected. On a seasonally adjusted, sequential basis, industrial production grew by 0.93% (mom), the fastest pace in four months. Retail sales increased by 1.2% (mom), its average pace this year. We expect AUD/USD to track higher, in line with the improved market sentiment, signs of stabilisation and improvement in the broader global economy and while the USD consolidates ahead of the 17-18 September FOMC meeting. The next AUD test will be the Australian labour market data on Thursday.
On the back of the softer USD, both EUR/USD and GBP/USD lifted yesterday and remained firm in today’s Asian session, although have since eased a little lower through the European morning. Yesterday GBP/USD touched its highest level since mid-June. There was a distinct lack of top tier data flow overnight in the Eurozone and UK. This remains the case today. Economic focus will pick up later in the week, with the release of the UK labour market data (Wednesday), Eurozone industrial production (Thursday) and Bank of England Governor Carney’s testimony to the UK Parliaments’ Treasury Committee (Thursday). In an environment of a consolidating USD, both EUR/USD and GBP/USD are likely to remain supported intra-day. That being said, intra-day EUR volatility may pick up today around the time of a panel discussion by the ECB’s Asmussen (8.30am EST/1.30pm BST). If monetary policy is discussed Asmussen is likely to reiterate the ECB’s cautious outlook. Any dovish comments would act as a EUR headwind
Upcoming Economic Calendar Highlights Important for Exchange Rates
USD - US Retail Sales (13 September). The US House and Senate are back in session this week to consider Syria and budget issues. Obama speaks to the nation about Syria tomorrow at 9pm Washington time.
AUD - August Australian labour market (12 September).
EUR - ECB speakers: Asmussen (10 & 12 September), and Draghi (12 September). Eurozone industrial production (12 September).
GBP - UK labour market data (11 September). BoE Governor Carney’s parliamentary
testimony (12 September).
NZD - RBNZ OCR Review (12 September).
CAD – BoC Governor Poloz speech (19 September).