FX risk trends favoured the greenback overnight erasing some of Wednesday’s post-fed minutes losses which showed members were closer to unleashing a third round of asset purchases. The Australian dollar lead risk currencies lower against the greenback with yesterday’s underwhelming Chinese manufacturing PMI the start of a more extensive decline overnight on negative risk trends.
Nevertheless, the Euro managed to stave off this general greenback strength on reports Spain is in talks with European leaders, in what may lead to an eventual bailout request and pave the way for the ECB support in the form of bond purchases. The Euro rose to 7-week highs against the greenback just shy of $US1.26-figure, while continuing to post solid gains against the Aussie dollar with the EURAUD pair rising to 6-week highs. The Kiwi was the strongest of the commodity bloc with managed to suffer only moderate losses against the greenback, while squeezing out gains against the otherwise in-form Euro.
Markets continued to interpret a largely inconsistent set of directives, with mixed economic feedback from Europe and the United states 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 of careful consideration.
Macro 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 falling to 48.3 from a previous 50.3. 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 more 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.
At the time of writing the Australian dollar is buying 104.4 US cents ahead of RBA Governor Glenn Stevens appearance before the House of Representatives Economics Committee. Given the recent scandal implicating top ranking RBA officials in the Securency scandal, 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 affect near-term interest rates. Also on the local docket is the release of the conference board leading Index for June.