Aussie Dollar Beneficiary of Heightened Risk Appetite | Daily FX Commentary

• Aussie bounces rallies from lows overnight on heightened risk appetite;
• Sterling remains under pressure despite stronger data ahead of Central Bank meetings;
• Euro makes headway against a weaker Greenback as Ukrainian tensions eased.

Early trade saw the Aussie dollar under some pressure immediately after the release of 2Q GDP data. GDP for the second quarter was largely in line with lowered expectations, declining net exports and domestic demand contributing to a modest 0.5% expansion in the second quarter. Chinese HSBC services PMI unexpectedly jumped to its highest level in 18 months in August, indicating that not all Chinese industries are experiencing a slowdown. Data had no immediate impact on the Australian dollar and it was Glenn Stevens’ speech in Adelaide that saw the Aussie gain traction as markets sought any policy guidance. The announcement by Ukraine that a ‘permanent ceasefire’ has been reached in one of Ukraine’s Eastern regions saw a return in risk appetite, European and US markets driving the local currency to $0.9350 overnight.

Sterling bulls appear to be few and far between at present, overnight demonstrated by losses across the board, despite expansionary services PMI data which only appears to have prevented further Sterling losses. The uncertainties surrounding Scottish independence and potential impacts on the UK economy, combined with slowed manufacturing and a dovish Central Bank have all contributed to a weaker pound in recent weeks and markets appear to be struggling to find the advantage over a firm greenback. The UK’s interest rate decision will stir up some attention this evening, however will most likely be a non-event without seeing minutes until later in the month and direction will likely stem from Draghi and geopolitical movements.

News from Eastern Europe that the Ukraine have agreed a permanent ceasefire with Russia has taken some of the pressure off the Euro overnight, the greenback falling as a consequence of heightened risk appetite. Mixed European data was largely overlooked ahead of the ECB’s rate decision this evening, where I think we can expect to hear a continuation of rhetoric surrounding political uncertainties. USDJPY lost some ground as the Japanese cabinet reshuffle saw the appointment of a new health minister who is expected to reform the Japanese Government pension fund. An uplift in US vehicle sales and a modest miss in factory orders was relatively overlooked in Ukrainian ceasefire excitement and it appears that this will continue to be the theme for the rest of the year, taking some of the attention away from US non-farm payrolls tomorrow.

[B]Tom Williams
Currency Analyst[/B]