• Aussie dollar bounces following building approvals and trade balance data;
• Sterling under pressure after UK policy maker dampens rate hike expectations;
• Draghi left markets in the dark providing lack of detail on asset purchase scheme;
• US reports encouraging weekly jobless claims ahead of non-farms this evening.
After an upbeat set of building approval numbers, the Aussie dollar continued to climb higher throughout Asian trade yesterday reaching $0.8825 in overnight trade, bouncing from lows of $0.8663 recorded earlier in the week. Local building approvals unexpectedly gained 3.0% in in August beating expectations of an uplift of only 1.0%, an encouraging number given the slowdown in mining activity and the expectation of economic transition towards infrastructure. A stronger jobless claims number from the US saw some support return to the US dollar overnight but Aussie strength prevailed managing to claw on to levels above $0.88. There is a sense that the US dollar has taken a breather this week with traders taking profits ahead of tonight’s non-farms and the Aussie has managed to take advantage of this, however a good number from the US tonight may lead to broad Greenback support once again next week.
Stronger construction PMI from the UK overnight wasn’t enough to buoy the pound after comments from Bank of England policy maker Ben Broadbent suggested that the UK economic recovery remains fragile and may not be sufficient to warrant increased interest rates. Yet another mixed signal from the Bank of England saw the pound come under pressure across the board opening this morning below $1.6150 in further evidence that MPC members remain split on the timing of policy adjustments. Despite important PMI data from the UK this evening, Sterling will likely take its lead from US data which includes a string of labour market, services and manufacturing data.
Markets had low expectations of yesterday’s ECB meeting but were taken by surprise with the lack of detail in the central bank’s proposed asset purchase scheme, leaving markets somewhat in the dark. Given recent interest rate cuts across the Eurozone, the ECB opted to save the details for a later date, holding off on providing additional details at least for the time being. We saw the Euro recoup some of its recent losses but such gains are unlikely to be sustainable, particularly as US data continues to raise expectations of an interest rate hike.
Weekly jobless claims, albeit a notoriously volatile number indicated that the number of US citizens filing for jobless benefits dropped more than expected last week, an encouraging number ahead of tonight’s non-farm payrolls data but not enough to spur demand in the greenback as traders take some money off the table. USDJPY remains under pressure after further comments from the Bank of Japan on the negative effects of a weakened currency given Japan’s reliance on fuel imports. USDJPY has dropped nearly 200 pips this week to open this morning around ¥108.45.