USD finished last week in gains with EUR down on disappointing flash PMI figures and GBP down on unexpected dovish BoE. The dollar was also firmer against nearly all the emerging market currencies after worries about the global economic growth dampen. But USD also faces pressure with the possibility of President Trump impeachment, and the usual back-and-forth trade relationship with China. U.S.Treasury yield steady early in the morning. On the data front, it is a mixed picture. On Friday, personal income rose 0.4% in August but spending, both nominal and real, rose a weak 0.1%. The durable goods numbers overall are good, but the business spending at -0.2% is a disappointment. This week we will have ISM Manufacturing PMI as well as two labour market reports to be released. August’s ISM manufacturing reading came 49.1, the first time in three years to drop below 50. September’s reading is expected to bounce back to 50.4, but if the number dropped into the contraction area for the second time in September, this could bring enough bearishness to end the USD recent rally. ADP and nonfarm payroll report are likely to post robust results as the labour market has been the reason that justified the Fed’s less dovish stance. While risk aversion still dominates the market, USD could still strengthen against other commodity currencies, and even EUR as bearish pressure on the Eurozone persists.
Brexit and political uncertainty remain in focus for the Sterling, dampening any optimism for the currency as the Brexit deadline on 31 October looms nearer. The Pound pared recent gains against the greenback after concerns of a no-deal Brexit resurfaces as Boris Johnson tried to force a snap election and criticised the Supreme Court judgement that his call to suspend the Parliament was illegal. He also indicated that voters wanted Politicians to deliver Brexit by end October, no-deal if necessary. Looking ahead, on the data front, investors will be keeping a close watch on its GDP and Nationwide Housing Prices data released next week though any optimism is likely to be short-lived should the Brexit and political uncertainty persist.
Last week, EUR slid lower against the greenback as Germany’s disappointing PMI data showed its worst industrial slump since the global financial crisis. Across the eurozone, there are signs that the manufacturing recession is starting to spread to services as the labour market comes under pressure. Meanwhile, Germany’s private sector is suffering its worst downturn in almost 7 years as the composite purchasing manager’s index fell to 49.1 in September, showing that its economy is entering a contractionary phase. Looking ahead, for this week, we might see the EUR extending its decline as investors anticipate a slew of economic data, with a key focus on Germany’s retail sales, unemployment, CPI and PMI data. On top of that, investors will be keeping a close watch on the Eurozone’s unemployment, CPI and PMI numbers as well, where missing estimates could see the EUR edge lower.
JPY rose on Friday as the market turns risk-averse after the news release that the White House is discussing ways to restrict U.S. capital flows into China. Those restrictions could include delisting Chinese companies from U.S. stock exchange and preventing U.S. government pension funds from investing in the Chinese market. However, later during the weekend, a U.S. Treasury official said there are no current plans to stop Chinese companies from listing on U.S. exchanges. This may not be enough to calm investors down as the tensions still remain before the meeting in October.
Domestically, the data shows a mixed picture: retail sales data in September came in good but not Industrial Production declined by 4.7% YoY vs. expectations of -0.5% YoY and prior 1.3% YoY. This week as the risk aversion is likely to persist ahead of the U.S.-China trade talks, JPY is likely to stay steady.
Last week, the Aussie dollar moved a lot, however it moved nowhere. AUD started the week by strengthening before tanking mid-week. The huge downswing was due to RBA’s Governor Lowe speaking. Whilst he signalled in his dovish message that a rate cut would be coming, he failed to mention when exactly this cut would come about.
This week, we have a key release on Tuesday regarding RBA’s interest rate decision. We are expecting the RBA to cut its rates further. This is because, in light of the US-China trade war and other central banks have cut their rates, the strong AUD might lead to Australia losing its a competitive edge. On Friday, we also have retail sales data is released. In light of geopolitical tensions and a weakening global economy, we also expect retail sales to have less than satisfactory data. We remain bearish on the AUD.
Last week, as expected, the RBNZ kept its interest rates unchanged at 1%. This helped strengthen the Kiwi. However, the strength in the Kiwi was short-lived as price pulled back as quickly against the USD. This was due to US-China trade negotiation whereby President Trump insisted that there would be a solution found quickly. After which, the Kiwi bounced and traded sideways as it was propped up by its central bank. RBNZ’s governor made it clear that NZ’s economy has no need for any further easing.
This week, RBNZ’s governor once again reiterated his view in the 2018-2019 Annual Report that NZ’s economy has proved herself to be resilient through a period of weakening global growth and heightened global uncertainty. However, the Kiwi fell further as business confidence sank to its lowest in more than a decade. Another business confidence report will be released on Tuesday by NZ’s Institute of Economic Research. This will confirm the business confidence data just released on Monday morning. We remain bearish on the NZD.
Last week, there was no high impact news for the CAD. As the CAD traded generally sideways against the USD for the entirety of the whole week. This week however we are cautious about Canada’s GDP data that would be released later tomorrow. A higher than expected forecast would be bullish for the CAD. We continue to keep an eye out for fresh developments in the upcoming government elections and developments in the oil market. For now, we turn neutral on the CAD.
Read more market views from Team AxiTrader: https://www.axitrader.com/uk/market-news-blog/.
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