• Aussie dollar extends fall against most major counterparts;
• Sterling remains under pressure as house price inflation slows;
• Euro resilient despite softer inflation data, lowest reading since 2009;
• Greenback rally resumes as US jobless claims fall to lowest for 8 years.
As US data has consistently surpassed expectations this week, the Australian dollar has remained under pressure falling close to $0.01 against the greenback since Monday. Worse than expected building approvals caused the Aussie dollar to drift lower throughout the morning and is consistent with the view that the local housing market is beginning to slow down. Improved US data overnight and news that Argentina has defaulted on debt obligations for the second time in 13 years favoured the greenback as markets sought safe haven assets. With a lack of support from domestic data and an increasingly encouraging US economic outlook, the local unit will likely remain under pressure ahead of non-farms this evening.
Things don’t look to be getting much better for Sterling at the moment and the bears have certainly come out on top. A lack of economic data has played its part in recent weakness of the pound, however what little data we have seen has been inconsistent with the view that the Bank of England will raise rates as quickly as some might expect. A thriving housing market has assisted the pound’s rally against most counterparts over the last 18 months and with Bank of England measures to curb risky mortgage approvals starting to show some effects, the market is questioning the probability of a rate hike in the near term. Comments from Bank of England’s Deputy Governor Ben Broadbent yesterday cited the scale of Britain’s household debts and the requirement for gradual and limited rate increases to prevent derailing an economic recovery.
The Euro traded resiliently considering year on year inflation was recorded at a mere 0.4% in July, missing estimates of 0.5%. Despite mounting disinflationary pressure across the Eurozone, the market seems to be comfortable that further easing measures are not forthcoming from the ECB in the short term and strength in US data only had a limited impact on the bloc’s currency overnight.
Consistent with the view that the US economy has recovered from the weather related lull in activity seen earlier this year, US data has surpassed expectations throughout the week, the greenback marking its highest monthly gain in over a year. Ahead of this evening’s non-farm payrolls, the four-week average of jobless claims in the US fell to the lowest in over 8 years, adding to speculation that a recovering labour market calls for higher interest rates. A less dovish Fed combined with consistent economic data is likely to see the greenback favoured, from a monetary policy perspective, against the Euro and Japanese Yen in the coming months.
[B]Tom Williams
Sales Trader[/B]