Stimulus conjecture remained a primary directive on Friday with markets once again walking the veritable minefield of preempting the Fed’s next move. On balance, the U.S macro picture has appeared a little brighter in recent sessions, adding weight to the argument the Fed may hold fire on further stimulus measures. Nevertheless, there remains a significant lack of consistency which was demonstrated by last week’s subdued inflation print, prompting a switch back in favor of further Fed easing. It’s clear markets are consumed with central bank easing expectations from both sides of the Atlantic and every data pulse has investors recalibrating there expectancy models. This was also demonstrated in the ensuing period of Tuesday’s outperforming retail sales data, which induced a solid greenback rebound across the board. With the picture still clear as mud, the only certainty is more of the same ahead of the highly anticipated meeting of the central bankers’ at Jackson Hole, Wyoming on August 31.
Despite moderate support across U.S equities, the Australian dollar trajectory turned sharply south on Friday with the AUDUSD pair cross the downside of points of previous 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 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 high over the week. The euro forged a 3-week high against the Aussie dollar on Friday and 6-week highs against the Japanese Yen. Despite a latter week reversal, the Canadian dollar maintained the upper hand over the greenback which finished the week with mild gains. Overall, the CAD had a solid week, posting fresh 14-week highs against the Japanese Yen and record highs against the Euro.
Apart from the usual headline risk resonating from the Euro region, stimulus will remain a key directive this week in the U.S 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. A speech by Atlanta Fed President Dennis Lockhart and current FOMC voting member will also be closely watched on Tuesday as markets continue to ponder the likelihood of a new round of Fed easing initiatives. 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.
Across the Atlantic, 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.
Locally, the release of the RBA minutes from their August 7 meeting will be the highlight of the local week ahead. Also in the frame this week will be the release of the HSBC China flash manufacturing PMI on Thursday and RBA Governor Glenn Stevens appears before the House of Representatives Standing committee on Friday.