• Risk appetite has continued its improving trend since the end of August. A combination of an easing in tensions surrounding Syria and firmer data globally has helped to shore up global sentiment. Analysts note that the Baltic Dry Index has surged over recent days which could be suggesting that there is an improvement in global growth prospects in the months ahead.
• Chinese Premier Li Keqiang said the foundations of a growth rebound are not solid while cautioning that stimulus will not help resolve deep-rooted issues in the world’s second-largest economy. Li reiterated that China would push forward interest-rate and exchange rate reforms and the internationalization of the Yuan, while promoting the currency’s convertibility under the capital account. The PBoC fixed USD/CNY to a record low of 6.1575 overnight.
• RBNZ More Hawkish: The RBNZ reiterated its guidance to keep rates unchanged this year as expected, but added a more explicit tightening bias with a comment that “Overnight Cash Rate increases will be required next year.” Kiwi Policy makers have brought forward their expected timing for the first hike to June 2014 from September previously and raised its 90-day interest rate projections by +20 to +50bps across the forecast horizon. There were no attempts to talk down NZD in the communiqué (0.8134).
• Australia’s employment surprised weak, falling -10.8k last month versus consensus for a +10k gain. The details were also very weak – FT fell -2.6k pushing the unemployment rate rose to a 4-year high of +5.8% from 5.7% in July, while the participation rate dropped to 65.0% from 65.1% (0.9232).
• BoE’s Fisher insists that their “forward guidance” will support the economy by making existing monetary stimulus more efficient. Governor Carney says that the ‘FG’ message has been understood.
• The rally that made the GBP the best-performing major currency the past six months is again gathering momentum as the U.K. economy continues to defy skeptics and analysts alike (£1.5812).
• Euro-zone Industrial Output fell sharply in July to the lowest level in three-years (-1.5%), raising new questions about the bloc’s ability to keep a modest economic recovery alive – EUR Falls from 1.33
• US Treasury yields have lost some upside momentum as tapering worries have eased (10’s +2.894%), providing relief to risk assets including emerging market currencies. Consequently the USD continues to lose ground and looks vulnerable to further slippage
• Gold prices have lost most of their allure as a safer retreat ($1,340 down -$78 in 10-days) now that diplomatic efforts between the US and ‘Mother’ Russia over the situation in Syria gather momentum. US Secretary of State, John Kerry is to meet Russia’s Foreign Minister later today in Switzerland to weigh up a proposal for removing stockpiles of chemical weapons in Syria.
• A weaker USD/JPY (¥99.33) has managed to drag the Nikkei 0.2% lower. The India’s Sensex fell 0.5% despite gains in INR, and S&P futures were flat to marginally lower. Elsewhere, most equity markets rose, by +0.2% to +0.6%. Asian rates rallied, following the US.
What To Watch For Today In North America:
• After last week’s 323K initial claims print pulled the four-week moving average down to an expansion low the market now expects today’s claims print to be slightly higher (expected +330k).
• The US Treasury will auction +$13b 30-year notes in the first reopening of the +3.625% August 2043 issue.
• Is the market rethinking the depth of US tapering? The recent slowdown in non-survey data increases the risk of a slower-than-expected tapering announcement if any at next weeks FOMC meet. Assuming this and combined with a postponed (for now) Syrian air strike could continue to weigh on the USD.
Dean Popplewell, Director of Currency Analysis and Research @ OANDA MarketPulseFX
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