FX trends favoured moderate gains from risk currencies overnight, in a move largely dominated by U.S dollar weakness on the back of subdued U.S inflation data. Headline inflation was flat in July against expectations of a moderate increase of 0.2 percent, representing annual growth of 1.4 percent. Core prices rose 0.1 percent, or 2.1 percent in yearly terms from growth of 2.2 percent in June. This prompted a material shift in greenback demand with the commodity bloc currencies the primary beneficiaries, but overall there was a lack of consistency with the Euro failing to key off stimulus expectations. Mixed economic releases made for a confusing set of directives with the New York Empire manufacturing index recording a surprise drop to -5.85 in August while Industrial production increased 0.6 percent in July from downwardly revised 0.1 percent in June.
In light of the European holiday period, liquidity remained extremely light which exacerbated moves, while immediate and decisive weakness from the greenback after the CPI release shows markets have little in the way of conviction over the Fed’s next move. It’s clear markets are consumed with central bank easing expectations from both sides of the Atlantic and every data pulse has investors crossing the veritable minefield in a attempt to preempt central banks. This was demonstrated in the ensuing period of Tuesday’s outperforming retail sales data, which prompted a material shift in stimulus expectations with lower expectancy inducing a solid greenback rebound. This was swiftly unwound overnight, with high beta currencies such as the Aussie and kiwi regaining composure after a 24-hour period on the back foot. The exception was the Euro which retraced recent gains falling below $US1.23-figure to lows of $US1.2263.
Rumors of sovereignflows kept the Canadian dollar in solid form which led the charge higher against the greenback while rising to fresh euro-era highs against the Euro. Efforts by the Swiss National Bank to protect the SFr1.20 peg to the Euro have seen vast amounts of euro denominated reserves accumulated. In order to mitigate this risk, the SNB will then exchange their mountain of Euro’s for other currencies, with the Canadian dollar alongside the Aussie and Nordic currencies believed to be the primary beneficiaries.
Local economic releases today include consumer inflation expectations, average weekly wages, and RBAFX transaction.
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