NAB Business Confidence to Drive A$ in Early Trade | Go Markets Daily FX Commentary

• Aussie dollar little changed ahead of Chinese data and NAB business confidence;
• Sterling bounces from lows as political tensions unwind;
• A lack of new data and reduced political threat saw greenback moderately supported overnight.

In a relatively quiet start to the week with the absence of economic data, direction continues to be sought from political events occurring around the globe. The Aussie dollar traded moderately weaker overnight against the greenback but continues to trade within a tight range, struggling to recover from lows seen as a result of last week’s unemployment data. Locally, this morning brings the announcement of NAB business confidence data and second quarter house prices which will likely cause some volatility as markets hold high expectations for a recovery in business sentiment, despite weakness in consumer sentiment as a result of an austere budget earlier this year. A positive reading from the July survey would mark a 12th consecutive month above 0, indicating an optimistic business environment. If we are to see any weakness in house prices in the second quarter, concerns may begin to mount that the RBA still have room to maintain a neutral bias on monetary policy for longer.

Sterling managed to bounce from its lows overnight as political tensions eased but still remains a long way from highs seen last month. The week ahead holds key significance in the pounds ability to recover from here and the Sterling bulls will need to see some indication of a rate hike in the near term from Wednesday’s quarterly inflation report. A rise in underlying inflation holds little credibility in determining when interest rates will be hiked, unless policy makers can see wages rising in line with consumer prices and this is what the market is sceptical of at the moment. Unless the market sees an indication that UK interest rates can rise this side of Christmas, the Greenback is likely to benefit as the Fed approach the end of bond-buying in October.

Both the Euro and Dollar traded sideways overnight, the greenback marginally benefitting as political tension seemed to ease. As always, the Japanese Yen was viewed as the safest bet amid turmoil in Iraq and we are starting to see traders once again turn towards the US dollar as political pressures ease and a ceasefire remains between Israel and Gaza. Comments from the Fed’s Vice Chairman Stanley Fischer overnight cited concern of an aging population and its potential effects on labour market participation and subsequent long term growth output. However, comments were balanced citing success in QE policy and the Fed moving closer to normalising interest rates. JOLTS job openings this evening are likely to spark a reaction, combined with the release of the US July budget statement.

[B]Tom Williams
Currency Analyst[/B]