September 6, 2016

Daily Observations:

Asian stocks rose to one-year highs while the US dollar maintained losses as prospects of a US rate hike later this month remained subdued. The Aussie dollar strengthened ahead of the RBA’s rate decision later today. Oil and precious metals advanced.

US:

  • US markets were closed overnight for the Labour Day holiday.
  • The dollar maintained near one week-lows; the Bloomberg Dollar Spot Index slid 0.2% overnight, paring earlier losses of as much as 0.4%.

Europe:

  • Eurozone services PMI for August fell to 52.8 from 53.1, missing estimates of 53.1. Composite PMI declined to 52.9 from 53.3, lower than the consensus estimate of 53.3.
  • Retail sales in the Eurozone for July rose 1.1% month-on-month and 2.9% year-on-year, more than the projected estimates of 0.5% and 1.8% respectively.
  • The ECB’s quantitative easing program passed a milestone last week, topping a total of 1 trillion euros in purchases of bonds in 18 months. The ECB is scheduled to meet Thursday, and expectations are mixed; some analysts are predicting an extension of the current QE program beyond Mar 2017, while others expect the central bank to stand pat now and wait until later in the year before acting.

UK:

  • HIS Markit PMI for UK services in July surged to 52.9 from a seven-year low of 47.4, the biggest monthly gain in its history; economists were expecting a monthly gain of 50.0.

Canada:

  • The BOC will announce its rate decision tomorrow night; no change to the current 0.50% is expected.
  • Canada’s July trade deficit last week narrowed more than forecast on the biggest jump in exports this year, reinforcing the view the BOC won’t further lower rates.

Japan:

  • Prime Minister Abe said according to current laws, the BOJ is forbidden to buy foreign bonds to weaken the yen, rejecting a recent suggestion from an adviser.
  • Koichi Hamada, a current economic adviser to Abe, commented that the BOJ should wait until after the Fed decides on interest rates before acting itself. He added that the BOJ risks having its efforts overshadowed if it expands monetary stimulus on Sep 21st, only to have its effect countered hours later should the Fed leave rates unchanged.

Australia:

  • The RBA will announce its cash target rate later today, and no change to the current rate of 1.50% is expected.
  • 2Q current account deficit came in at A$15.5 billion, less than the A$20 billion projected; the previous quarter’s deficit of A$20.8 billion was revised lower to A$14.9 billion. Net exports over the same period is seen to have cut 0.2% from GDP, instead of an initial estimation of no change.

Precious Metals:

  • Spot gold was steady and maintained near its highest levels in more than a week, although it is still facing some form of resistance at the $1,330/Oz level.
  • Silver for immediate delivery continues to make higher highs, briefly advancing 0.4% to $19.5762/Oz earlier today before paring gains.

Oil:

  • Crude oil for October delivery jumped as much as 4.7% last night to $46.53/bbl, before retreating back to the $45/bbl handle this morning.
  • The surge was due to speculation that Saudi Arabia and Russia would agree to cap output.
  • While Saudi Energy Minister Al-Falih said he was optimistic there would be an agreement to cooperate at a meeting between OPEC and other oil producers in Algiers later this month, prices retreated after he said there was no need to freeze production now.

 

USDSGD:

  • Spot 1.3577
  • After falling for two days, USDSGD seems to have steadied, finding some form of support above 1.3550.

 

AUDUSD:

  • Spot 0.7623
  • AUDUSD climbed to its highest since 27th Aug, advancing as much as 0.6% to 0.7632 earlier today, before the RBA is expected to announce its cash target rate.
  • The Aussie dollar is underpinned as commodity prices have regained some of their losses, and China, Australia’s biggest trading partner, appears to be stabilizing. In addition, slower US jobs growth in August also helped the Aussie as it weakened the case for the Fed to raise rates later this month.

 

USDCAD:

  • Spot 1.2926
  • USDCAD continued its decent, falling 0.2% back towards the 1.2900 handle. The Canadian dollar has been buoyed by recent weakness in the US dollar, oil’s rebound, as well as increasing expectations that the Bank of Canada will keep interest rates on hold at its meeting tomorrow night.

 

USDCNH:

  • Spot 6.6908
  • The PBOC strengthened its fixing by 0.3% to 6.6676 against the dollar.
  • USDCNH remained little changed, as it continues to be capped at the 6.7000 level.
  • According to an OCBC economist, the PBOC may be less motivated to defend the 6.7000 psychological level after the G-20 summit in Hangzhou concludes.

 

USDJPY:

  • Spot 103.57
  • USDJPY pared gains of as much as 0.5% following comments from Abe’s economic adviser that the BOJ should hold off expanding monetary stimulus until after the Fed decides on US interest rates.

 

GBPUSD:

  • Spot 1.3309
  • GBPUSD pared some of its recent gains, declining 0.3% back towards the 1.3300 handle earlier today.
  • Sterling yesterday reached its strongest level in almost 2 months versus the dollar, rising as much as 0.6% to 1.3376.
  • GBPUSD’s 11% drop since Brexit ranks the pound as the worst performer among major peers, although hedge funds and other large speculators have begun to reduce their net short positions last week, the first time since early July.
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