U.S dollar strengthens as stimulus hopes fade

August 31, 2012 By Leave a Comment

Overnight market activity shows investors have entered a price discovery phase ahead of Friday’s Jackson Hole conference, prompting losses across the risk spectrum and a stronger greenback. Markets are assessing each incoming data pulse in the context of the whether the Federal Reserve will launch a third round of quantitative easing, prompting a ‘bizzaro world’ scenario where good news can lead to losses across risk related assets as market lower the chances further Fed stimulus.

After finding some bids in the domestic session, the Australian dollar resumed a downward trajectory overnight, crossing the downside of 103-figure to 5-week lows of 102.75 US cents. The Euro outpaced its risk counterparts but remained capped under the weight of a stronger greenback. U.S equities also reflected the declining odds of QE3 with the DOW and S&P losing 0.81 and 0.78 percent respectively.

Although incoming data points show the U.S recovery remains tepid at best, bright spots across some leading indicators suggests the Fed may be reluctant to imminently launch QE3. Recent reports on retail sales, GDP, and housing all point to a slightly stronger than anticipated recovery and there’s a sense some of the softer incoming data points could be worse. U.S economic data overnight showed personal consumption rose 1.6 percent in annual terms, falling from 1.8 percent in July. Personal income rose 0.3 percent in July to match estimates and June’s growth and spending edged up 0.4 percent from a flat reading in June. Weekly jobless claims were unchanged at 374,000 for the week ending August 25, edging slightly higher above consensus estimate of 370,000.

Atlanta Fed President Dennis Lockhart also prompted a dulling of stimulus expectations overnight, stating in an interview with CNBC that additional easing is a “close call” while adding “I am not overly concerned with the longer-term costs of more action but at the same time I see limited benefit from more action.” The effectiveness of further stimulus has been brought into question in recent times given borrowing rates remain near to record lows. This suggests that while QE3 may provide a superficial boost or short-term sense of euphoria for markets, it’s unlikely to directly influence structural issues such as the high rate of unemployment. With U.S mortgage rates in some cases as low as the 3-4 percent region, it’s clearly never been a more cost effective time to borrow, but given the housing bubble and subsequent global economic crisis, high unemployment and low credit worthiness has made the dream of owning a home illusive for many U.S citizens as lenders maintain conservative risk profiles. This suggests further Fed stimulus may be of only superficial assistance at best.

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Mild bid tone guides greenback higher ahead of Fed conference

August 30, 2012 By Leave a Comment

True to recent form, markets remained transfixed on the forthcoming Jackson Hole conference on Friday but there remained little in the way of convincing moves across the risk spectrum. The Aussie dollar continue to be capped below 104 US cents with moderate weakness noted in throughout the U.S session but remained supported above key short-term support at 103.4 US cents. The Euro followed a similar path unable to break through the upside of 1.2580 before weakening over the course of U.S trade. After mild weakness on Tuesday, the U.S dollar was well bid across major counterparts with the Kiwi, Euro and Swiss franc leading a move lower.

In economic news, preliminary estimates for German consumer prices in August showed inflation rose 2-percent in annual terms from 1.7 percent in July. Expectations were for slightly more moderate rise to 1.9 percent. In an article in the German publication Die Zeit, European Central Bank President Mario Draghi once again signalled non-standard policy initiatives are on the horizon, writing “It should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools.” Draghi also wrote “when markets are fragmented or influenced by irrational fears, our monetary policy signals do not reach citizens evenly across the euro area, “the ECB will do what is necessary to ensure price stability, it will remain independent and it will always act within the limits of its mandate.” Citing increased workload, Draghi has cancelled his scheduled appearance at the Jackson Hole conference later this week.

Across the Atlantic, U.S second-quarter GDP was revised higher from 1.5 to 1.7 percent as expected. Core consumption expenditure also matched preliminary estimates recording quarterly growth of 1.8 percent. Personal consumption increased to 1.7 percent ahead of preliminary expectations of 1.5 percent. The release of the Fed’s beige book which is an anecdotal account of current conditions from each of the 12 Federal Reserve districts showed growth remained moderate. According to the text, economic activity continued to expand “gradually” across most regions. On balance it appears even though there may be bright spots throughout some districts, it hardly represents a material change to overall subdued conditions with some regions experiencing “slow growth in most sectors and declines in manufacturing.”

Once again the local session will see little in the way of major themes to prompt any significant moves. Data on private capital expenditure is scheduled to be released at 11.30. We anticipate regional equities to direct short-term price action before we’re once again at the mercy of European and U.S markets to guide the way. At the time of writing the Australian dollar is buying 103.5 US cents.

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Disappointment risk grows ahead of Jackson Hole

August 29, 2012 By Leave a Comment

Risk currencies strengthened overnight largely responding to a heavy greenback across the board. Despite what appears to be a moderation in expectations ahead of this Friday’s Jackson Hole conference, we’ve yet to see this manifest in US dollar performance, suggesting a greater risk of disappointment in the ensuing period. After moderate losses early this week, the Euro found some upside momentum once again before stalling just shy of $US1.2580, while remaining well-bid against its high-beta counterparts. The EURAUD pair returned above 1.21-figure for the first time since early July with price action approaching technical levels considered to be overbought. The latest bout of EURAUD strength coincides with the relative strength index approaching the ‘70’ levels. Technical analysts believe a reading of ‘70’ or above suggests a reversal to the downside while a reading of ‘30’ and below shows oversold signals. The Australian dollar managed to stave off broad selling earlier in the week with a weaker greenback helping the pair to bounce off technical support of 103.4 US cents to highs of 104.9 US cents.

In a blow for those hoping to get further insight into the European Central Bank’s next move, President Mario Draghi has cancelled his scheduled appearance at the Jackson Hole conference later this week, citing increased “workload.” It’s clear Investors are in high expectancy mode ahead of the next ECB policy decision on Sept 6, which is expected to see the Draghi and Co embark on new easing initiatives to bring down the borrowing cost of Europe’s struggling periphery.

Spanish growth statistics released overnight showed Gross Domestic Product fell 0.4 percent in second-quarter to represent a contraction of 1.3 percent in yearly terms. Alarmingly, the report from the National Institute of Statistics also reported employment in the economy decreases at a year-on-year rate of 4.6%, to represent a net reduction of 801 thousand full-time jobs in yearly terms. Nevertheless, a sale of short-term Spanish debt fetched a decidedly lower yield than recent auctions, reflecting positivity over the countries near-term prospects in light of expectations the European Central Bank will begin buying distressed peripheral debt. Spain sold €1.67 billion in 3-months debt at an average yield of 0.95 percent from 2.43 percent on July 24. It also sold €1.93 billion in 6-month debt at of 2.03 percent, down from 3.69 percent. Still, Spain must first seek financial aid and meet “strict and effective conditionality in line with the established guidelines,” to qualify for direct assistance from the European Central Bank to bring down borrowing costs.

Across the Atlantic, Economic data was mixed with the Case-Shiller house price index recording a surprise increase in June amid a lower than expected read in U.S consumer confidence. In an interview with Bloomberg, the managing director of Ratings agency Fitch, David Riley said the looming U.S fiscal cliff  is of “real concern,” while suggesting the countries triple-A debt rating is at risk of being downgraded by the first half of 2013. Meanwhile, market participants remain transfixed this week’s conference in Jackson Hole conference on Friday in the hope Fed Chairman Bernanke signals a third round of quantitative easing.

The day ahead will see regional equities guide currency performance in the absence of major market moving themes locally. Data on construction work done is due for release at 11.30 AEST. At the time of writing the Australian dollar is buying 1.2565.

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A$ maintains slow grind lower; Fed’s Evans calls for immediate action

August 28, 2012 By Leave a Comment

Hopes of ECB intervention continued to underpin gains across European equities overnight, despite the latest German IFO business climate release falling to its lowest level since March 2010. Business conditions fell to an index level of 102.3 in August, from a previous 103.3, raising further doubts over Germany’s economic prowess amid constant negativity from the periphery.

The Euro continued to consolidate last week’s gains against the greenback with the pair falling below 1.25-figure, but on balance the Euro remains a risk currency of least resistance outpacing its commodity bloc counterparts the Kiwi, CAD and Aussie.

Pessimism surrounding China’s growth prospects continued to pressure the Australian dollar with latest industrial profits sliding 5.4 percent in July from a year earlier, representing the fourth consecutive month of negative growth. The local unit continued is slow grind lower falling to fresh 1-month lows against the U.S dollar. The data pulse from China has been far from inspiring with recent economic releases suggesting China’s days of expeditious growth have taken a south-bound turn. Recent data points have shown shrinking exports amid subdued domestic demand, in addition to sub-par bank lending activity. While a moderation in export activity reflects the persistent drama’s resonating from the Euro area, sub-par imports to the region may suggest recent easing initiatives by the Peoples Bank of China have yet to infiltrate domestic demand or simply may not be enough. Recent consumer price data may have shown an inflation environment worthy of further policy easing; however it’s also clear the world’s second largest economy faces considerable challenges unrelated to domestic policy, as Eurocentric concerns continue to slow the pace of exports to the region. The latest trade data showed exports to Europe slumped 16 percent in July from a year earlier. Meanwhile on a tour of one of China’s largest exporting province’s Guangdong, Premier Wen Jiabao said “Stabilizing economic growth is the key task for second-half economic work” while stating “the third quarter is a crucial period for realizing full year targets on export growth.”This now places further pressure on government and monetary authorities to concentrate on boosting growth from a domestic perspective, in light of the unwavering anxiety from the European region in particular.

Meanwhile, U.S markets remained transfixed on the forthcoming Jackson Hole conference on Friday to see if Fed Chairman Bernanke signals a third round of quantitative easing. Overnight, Chicago Federal Reserve Bank President Charles Evans took a more hasty position to rouse the U.S from its economic slumber, telling reporters in Hong Kong, “I don’t think we should be in a mode where we are waiting to see what the next few data releases bring,” We are well past the threshold for additional action; we should take that action now.”

Local data on the docket today includes HIA new home sales while China’s leading index is also expected to be released in the domestic session. At the time of writing the Australian dollar is buying 103.6 US cents and the Euro is trading just shy of 1.25-figure against the greenback.

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Stimulus conjecture to reach critical mass ahead of Fed’s Jackson Hole conference

August 26, 2012 By Leave a Comment

The week ahead will see global markets transfixed on Friday’s gathering of the world’s central bank elite in Jackson Hole, Wyoming, for the annual Kansas City Fed symposium. In recent years the event has attracted increased attention in light of the common challenges faced by global central banks, as a result of the financial crisis. The meeting is also seen as a platform for leaders to discuss future policy decisions, notably Fed Chairman Ben Bernanke used the event in 2010 to signal a second round of quantitative easing. Markets are clearly looking for Bernanke to elaborate on recent Fed commentary showing a willingness to embark on further easing initiatives should incoming data points fail to show a “substantial and sustainable strengthening in the pace of the economic recovery.”  Although Fed members have individually displayed their conditional tick of approval should the economy falter, it’s unlikely Bernanke can be any more succinct than his letter to the Chairman of the House oversight committee, Darrell Issa, last week, which stated “there is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery.” Nevertheless, speculative activity ahead Friday’s meeting will be high, reflecting the constant changes in expectations as market participants look to each incoming data point to gauge how this may sway the chances of imminent policy easing. Among a host of influential data points due for release, top-tier data on this week’s docket includes a revision to second-quarter GDP on Wednesday, an anecdotal view of economic conditions from the Fed’s beige book on Thursday, alongside the release of July’s personal consumption expenditure data. Data on the health of U.S housing, consumer confidence and factory orders will also be watched closely ahead of the Jackson Hole conference.

Australian dollar at the mercy of U.S stimulus expectations

In the absence of local market moving releases, we anticipate the Australian dollar’s performance this week will be closely tied to U.S stimulus expectations ahead of Friday’s Jackson Hole symposium. In recent times, a great deal of attention has been paid to the Aussie’s resilience in spite of a marked decline in Australia’s most valued commodity exports. But this fracture in correlative value between declining terms of trade and price action, may be a relatively insignificant theme in comparison to broader, more pressing directives ahead, with U.S quantitative easing expectations front row and centre.  Thursday’s rally beyond 105 US cents failed to hold despite respectable gains from U.S equity markets on Friday.  The AUDUSD pair closed just shy of 4-week lows on Friday, driven by concerns the ‘once in a lifetime’ mining boom may be fading as Chinese growth comes off the boil. The month of August has also seen the local unit outpaced by its more unlikely counterparts, with Aussie dollar losing over 3-percent against the Euro after forging fresh euro-era highs on August 2. The Australian dollar lead the charge lower against the greenback with Thursday’s less-than-inspiring Chinese manufacturing PMI creating a key inflection point to the downside of 105-figure. Mid-tier directives this week will see the focus remain on China with the industrial profits and leading index on the docket, while local releases include HIA new home sales, private capital expenditure and private sector credit. From a local perspective, market participants are well informed given the recent host of commentary from the RBA, suggesting local directives will take a back seat to central bank expectations emanating from both sides of the Atlantic in addition to the growing possibility of new stimulus initiatives from China.

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Euro leads, A$ lags, but confusion reigns supreme

August 24, 2012 By Leave a Comment

True to form, markets continued to interpret a largely inconsistent set of directives overnight, with mixed macroeconomic feedback from both sides of the Atlantic providing little in the way of clarity. Amid general optimism European leaders will finally take decisive steps to stem the regions decline, growth concerns surrounding the economic health of flagship Germany remains an important driver.

Data released overnight showed German GDP rose a seasonally adjusted 0.3 percent in the second-quarter, matching preliminary estimates. In yearly terms the German economy grew 1-percent, also unchanged from preliminary estimates. German manufacturing PMI recorded an index level of 45.1 in August from 43 in July, while services PMI fell into contraction territory from 50.3 to 48.3. Similarly, Euro-Zone manufacturing PMI rose to 45.3 in August, outpacing estimates of 44.2, while services slipped further into contraction territory, falling to 47.5.

Across the Atlantic, U.S weekly jobless claims rose by 372,000 for the week ending August 18 against expectations of 365,000. U.S manufacturing PMI rose to an index level of 51.9, slightly ahead of expectations of 51.5. U.S housing data also showed tentative signs the housing sector is waking after a six-year slumber, with new home sales jumping 3.6 percent in July from a fall of 3.5 percent in June.

On the surface it would appear a confusing set of directives has promoted a modest bout of risk aversion, however it’s also important to consider the implications each data pulse has on quantitative easing expectations. Markets remain on high alert ahead of the Fed’s annual Jackson Hole conference, looking for any shift in underlying data trends to quantify the likelihood of further easing initiatives. Comments from Fed’s Bullard overnight also failed to provide any clarity, expressing doubt over the need for further asset purchases, suggesting he would oppose such measures in light of the recent upturn in economic data. St. Louis President Fed President James Bullard is not currently a voting member of the FOMC.

Risk trends favoured the greenback which pared some of Wednesday’s losses after the Fed minutes showed members could err towards unleashing a third round of asset purchases. The Australian dollar lead the charge lower against the greenback with yesterday’s less-than-inspiring China manufacturing PMI creating a key inflection point to the downside of 105-figure. The exception remained the Euro which continued its unwavering path higher against the U.S dollar, but the most pronounced gains were seen against the Aussie dollar with the EURAUD pair rising to 6-week highs. Reports Spain is in talks with European leaders in what may lead to an eventual bailout request kept the Euro in solid form, rising to 7-week highs against the greenback just shy of $US1.26-figure.

The Kiwi was the strongest of the commodity bloc which managed to suffer only moderate losses against the greenback while squeezing out gains against the otherwise in-form Euro. The next key directive for the Kiwi will be this morning’s trade balance data.

The day ahead will see the focus shift to RBA Governor Glenn Stevens who will testify before the House of Representatives Economic Committee. Given the recent scandal implicating top ranking RBA officials, one would expect this to take up a fair portion of the Governors 3-hour grilling, nonetheless, investors will be closely watching Stevens for his current economic assessment and attempt to decipher how this may sway near-term interest rates. Also on the local docket is the release of the conference board

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U.S dollar slides as Fed keeps QE dream alive

August 23, 2012 By Leave a Comment

As anticipated, the release of the Fed policy meeting minutes were the key directive overnight, with the ensuing reaction across currencies showing the prospect of a third round quantitative still very much on the table. Although members remain cautious of the implications, the minutes show support for further asset purchases while once again floating the idea of providing explicate guidelines on how future economic performance may shape policy decisions. “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

This willingness from the FOMC to keep QE in their armoury saw investors once again recalibrate stimulus expectations, inducing notable losses from the greenback. The most pronounced move came from the USDJPY pair which slid over 1-percent in the ensuing period while the Euro, sterling, and commodity bloc currencies also received a solid leg-up by default. The Euro broke the upside of key short-term resistance at 1.2485/90 region, exacerbated by light liquidity amid existing support as a shorts continue to be unwound in anticipation of ECB policy action. The Australian dollar regained its lustre making a sharp move above 105-figure, but continued to be outpaced by other major counterparts, led by the Japanese Yen.

With each new data point or Fed correspondence released we’re seeing markets recalibrate stimulus expectations with immediate and decisive moves from the greenback suggesting markets have little in the way of conviction over the Fed’s next move. Its clear markets are consumed with central bank easing expectations from both sides of the Atlantic and every data pulse has investors crossing the veritable minefield in an attempt to pre-empt central banks. Before the next policy meeting in September, markets will be closely watching the Fed’s latest economic assessment at the Jackson Hole conference on August 31, with the hope Fed Chairman Ben Bernanke will use the event as a platform to signal QE3. Between now and then, market participants are on high alert looking for any under-performing top-tier data point’s to increase the chances.

Economic data from China today will shape the local unit’s short-term fortunes with the HSBC flash manufacturing PMI on the docket. A move above  the expansionary level of  ‘50’  is likely to fuel further short-term upside momentum. Also on today’s docket we have China’s conference board leading index. At the time of writing the Australian dollar is buying 105.05 US cents.

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Euro regains its lustre on ECB expectations

August 22, 2012 By Leave a Comment

The Euro led a risk currency charge higher overnight with the EURUSD pair breaking the upside of US$1.24 for the first time since early July. Rumor and innuendo continue to drive currencies with investors focusing on the possible ECB initiatives in the pipeline to bring down the borrowing costs across Europe’s periphery. A well-attended Spanish debt auction gave the Euro further impetus to build on earlier gains, with the upside momentum forcing a further squeeze of short-side positioning which was exacerbated by light liquidity. The Euro rose to highs of 1.2490 and remains well supported around current levels of 1.2470.

The Australian dollar enjoyed solid support in the ensuing period of RBA monetary policy minutes and into early European trade with price action breaking the 105 US cent region. The release of the minutes set a key inflection point for the local unit but the momentum faded coinciding with a reversal from U.S equities which provided headwinds. As often the case, it was perhaps what was absent from the minutes which gave the local unit a burst of energy. Apart from a brief mention, the minutes failed to elaborate on the fundamental divergence between dollar demand and a decline in commodity prices, and more importantly if this divergence is classified as market dysfunction worthy of direct intervention. Markets have been well informed (courtesy of the recent Statement on Monetary Policy) of the “important risks” a high exchange rate may have on domestic conditions which softened the impact. Nevertheless, while acknowledging the risks to the domestic economy emanating from the Euro region and deterioration in the global growth prospects, the minutes were far from gloomy. The minutes noted tentative signs Chinese growth is “stabilising at a more sustainable pace,” while recent interest rate reductions were beginning to infiltrate domestic conditions, in particular the housing market.

Why the RBA won’t stand in the way of a rising Australian dollar

Local economic data on the docket today includes the Westpac leading index and DEWR internet skilled vacancies, both of which generally have little sway on short-term price action. While regional equity movements may provide the direction in domestic trade, the next top-tier event will be this evening’s release of the FOMC meeting from the August 1st meeting, which is sure to attract the usual level of stimulus related conjecture ahead of the Jackson Hole summit on August 31.

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Euro drifts higher in lethargic trade; RBA minutes on tap

August 21, 2012 By Leave a Comment

In what appeared to be a largely risk-neutral and lethargic offshore session, markets continued to tread water ahead of major forthcoming event risk such as the Fed’s annual Jackson Hole summit, FOMC meeting, and further feedback on ECB easing initiatives. On balance, it was a rather unspectacular session with little in the way of top-tier themes to spark a convincing change in risk trends one way or the other, amid extremely low liquidity.

The Aussie dollar maintained a tight 35 pip range against the greenback with price action consolidating around current levels of 104.5 US cents. Support for the Euro remained in play despite moderate losses across European equities and further criticism from Germany’s central bank over the proposed ECB bond buying operations.  There has also been talk the European Central Bank may place limits on peripheral debt yields, which was quickly refuted by the bank.

This backdrop of relative calm may be a welcome change but with a series of top-tier game changes on the horizon, it may simply be the calm before the storm. Wednesday’s release of the Fed minutes from the August 1st meeting is sure to attract the usual level of stimulus related conjecture ahead of the Jackson Hole, and a speech by Atlanta Fed President Dennis Lockhart and current FOMC voting member will also be closely watched this evening as markets attempt to gather intelligence on the likelihood of further stimulus. Euro-group President Jean-Claude Juncker will also meet Greek Prime Minister Antonis Samara in Athens this week, amid speculation Greece will seek more time to implement agreed austerity measures as part of their bailout conditions.

The highlight of the local session will be the RBA minutes from their August 7 policy meeting, which saw Governor Stevens and Co hold benchmark rates steady at 3.5 percent. While acknowledging the significant challenges from the euro region amid a subdued global growth outlook, on balance, the statement painted a fairly positive picture. On China, the statement noted growth has moderated to a more sustainable pace, but “does not appear to be slowing further.” Local inflation is expected to be in line with expectations and business credit has recorded its strongest growth in several years. On the Australian dollar, the bank highlighted the local unit’s resilience despite a marked decline in the terms of trade and weaker global growth outlook. This point was further emphasized in the later release of the RBA Statement on Monetary Policy which also acknowledged the role a strong currency has played in dampening domestic growth and weighing on non-resource industries and employment. In short, the board considers the high exchange rate places “important risks” on the domestic conditions. This represents a change in language from previous RBA commentary, with the emphasis now on the disparity between fundamental drivers and Aussie dollar demand. Any elaboration on this today may serve as a reminder the Reserve Bank has their eye on high exchange rate, in turn reigniting the debate on how the bank will mitigate these “important risks”. At the time of writing the Australian dollar is buying 104.5 US cents, short-term supported is noted around 104/104.1 US cents with a further leg-lower likely to be slowed around the 103.8 US cent region.

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A$ slides as investors rein in stimulus expectations

August 20, 2012 By Leave a Comment

Despite moderate support across U.S equities, the Australian dollar trajectory turned sharply south on Friday with the AUDUSD pair crossing the downside of various points of support, before bottoming out just above 104-figure.  The very same factors which have underpinned recent gains are now working against Aussie dollar, as market participants discount the chances of further Fed stimulus. The local unit was the second-worst performer of the major’s, losing around 1.5 percent over the week, behind the Japanese Yen which lost 1.64 percent against the in-form greenback.  A slightly better-than-expected consumer confidence report from the University of Michigan and a stronger leading index confirmed the trend of U.S dollar dominance, while U.S equity markets finished the week in positive territory, representing six consecutive weeks of gains from the DOW and S&P500.

The Euro escaped largely unscathed against the greenback with the pair finishing a moderate 0.36 percent higher over the week. Fresh from vacation, last week German Chancellor Angel Merkel echoed recent comments from ECB President Mario Draghi, saying “we feel committed to do everything we can in order to maintain the common currency.” In a further display of solidarity, Merkel also said the recent European Central Bank decision to reboot peripheral bond-buying operations on a conditional basis is “completely in line with what we’ve said all along.”  It’s appears this unified front has given investors ample reason to unwind short-side exposure which has provided the euro relative stability in comparison to its risk currency counterparts. The euro forged a 3-week high against the Aussie dollar on Friday and 6-week highs against the Japanese Yen amid extremely light liquidity given the August holiday period. Germany will provide the bulk of euro region macro releases this week with Thursday’s final revision of second-quarter GDP to take centre stage. Also of interest will be the health of manufacturing and service sectors with both Germany and the Euro-Zone PMI releases. Euro-group President Jean-Claude Juncker will meet Greek Prime Minister Antonis Samara in Athens this week, amid speculation Greece will seek more time to implement agreed austerity measures as part of their bailout conditions. With Europeans slowly returning from there August holiday period, we may see liquidity begin returning to the market which may also bring increased headline risk as politicians and central bankers return to their posts over the next fortnight.

The highlight of the local week ahead will be the RBA minutes for the August 7 policy meeting which saw Governor Stevens and Co hold benchmark rates steady at 3.5 percent. While acknowledging the significant challenges from the euro region amid a subdued growth global growth outlook, on balance, the statement painted a fairly positive picture. On China, the statement noted growth has moderated to a more sustainable pace, but “does not appear to be slowing further.” Local inflation is expected to be in line with expectations and business credit has recorded its strongest growth in several years. On the Australian dollar, the statement simply highlighted the local unit has remained resilient despite a marked decline in the terms of trade and weaker global growth outlook. This point was further emphasised in the later release of the RBA Statement on Monetary Policy which acknowledged the role a strong currency has played in dampening domestic growth and weighing on non-resource industries and employment. The bank also highlighted the resilience of the dollar despite a marked deterioration in global growth expectations, while attributing strength to foreign demand for the relative safety of highly rated Australian dollar securities. In short, the RBA considers a high exchange rate poses “important risks” to the domestic economy. This represents a material shift in language from previous RBA commentary, with the emphasis now on the disparity between fundamental drivers and Aussie dollar demand. Also in focus this week will be the release of the HSBC China flash manufacturing PMI on Thursday with an appearance from RBA Governor Glenn Stevens before the House of Representatives Standing committee on Friday.

Apart from the usual headline risk resonating from the Euro region, stimulus expectations will remain a key directive this week, with Wednesday’s release of the Fed minutes from the August 1st meeting sure to attract the usual level of stimulus related conjecture ahead of the Jackson Hole summit at the end of the month. A speech by Atlanta Fed President Dennis Lockhart and current FOMC voting member will also be closely watched on Tuesday as markets attempt to gather intelligence over how individual members see the recent bright spot across data points. Economic news this will see the focus turn to data on the health of the U.S housing sector with new and existing home sales alongside corporate earnings from tech heavyweights Dell and HP. Manufacturing data will take the stage later in the week with Markit PMI and Durable goods orders on the docket.

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