Market Drivers August 7, 2018
Risk FX recovers in London trade
RBA on hold again
Nikkei 0.69% Dax 0.85%
Europe and Asia:
AUD RBA on hold
CAD Ivey PMI 10:00
Risk FX popped today on the back of rebound in Chinese shares as the Shanghai Composite Index rose 1.4 percent after investors snapped up shares that were hit hard during a four-day losing run.
The move helped fuel a run in EURUSD AUDUSD and GBPUSD as the pair rose through the London morning dealing to hit their best levels in a day. EURUSD rose to a 1.1580 with the bulls eyeing the recapture of the 1.1600 as the pair once again held support at the key 1.1500 level yesterday.
The only event risk on the docket was the RBA rate decision which proved to be a non-mover as expected with the central bank holding rates steady for 19th consecutive month. The RBA statement itself was mixed with central bank downgrading its inflation outlook somewhat noting that, ” In the interim, once-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower than earlier expected, at 1¾ percent.”
However, the central bank also noted that labor demand was strong projecting that, “A further gradual decline in the unemployment rate is expected over the next couple of years to around 5 per cent. Wages growth remains low. This is likely to continue for a while yet, although the improvement in the economy should see some lift in wages growth over time. Consistent with this, the rate of wages growth appears to have troughed and there are increased reports of skills shortages in some areas.”
Overall, the RBA statement offered little fresh information, though it was surprisingly upbeat given the current global trade tensions and as such provided some support for the Aussie which was lifted way above the .7400 figure once the risk FX rally kicked in. The pair remains in a broad .7300 – .7500 range for the time being, but is looking increasingly well bid and if the tension on trade begin to ease the pair could try to break the upper end of the range over the next several weeks.
As to the greenback, it remains stymied in its efforts to break to the upside. The rally in dollar index once again stalled at the 95.5 level and the buck looks like it may lose more ground as the day progresses. As we noted yesterday, the less than stellar NFP wage results killed any momentum in the dollar rally as US growth is simply not translating into income gains. That dynamic has the market cautious about future Fed policy, despite hawkish rhetoric from the FOMC. For now the summer doldrum prevail in the FX market, but the bias this morning remains firmly anti-dollar.