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The Aussie held on to its gains from the earlier session and went for more as the U.S. will reportedly pursue another round of trade talks with China.

Meanwhile, the Loonie also drew support from trade-related updates, with folks expecting a NAFTA deal expected to be signed, sealed, delivered soon.

The Greenback was mostly weaker throughout the session, shrugging off hawkish remarks from Brainard on account of downbeat PPI and risk-on flows. Either that or dollar traders were distracted by shiny new things from Apple.

  • U.S. headline PPI down 0.1% vs. projected 0.2% gain in August
  • U.S. core PPI also down 0.1% vs. estimated 0.2% uptick, previous 0.1% gain
  • EIA crude oil inventories fell 5.3M barrels vs. projected 1.3M reduction
  • FOMC member Brainard: Fed has room to tighten “over the next year or two”
  • Guajardo: Mexico’s NAFTA negotiator on his way to Washington
  • WSJ: U.S. officials sent invitation to China for another round of trade talks

Major Events/Reports:

Surprise drop in U.S. PPI

The August PPI report revealed that producer prices in the U.S. dipped for the first time in over a year. Headline and core readings both posted 0.1% declines versus expectations of 0.2% gains.

These were also weaker compared to July figures, which had a flat reading for the headline PPI and a 0.1% uptick for the core version. Components of the latest report indicated that the drop was mostly due to lower prices of food and a range of trade services.

On a year-over-year basis, this translates to a 2.8% reading for August, down from July’s 3.3% figure. Since producers tend to pass on price changes to consumers, this could imply downside pressures on overall inflation in the months ahead.

Brainard’s remarks

In a speech on economic outlook and monetary policy at the Detroit Economic Club Luncheon, FOMC voting member Lael Brainard remarked that the Fed has room to tighten “over the next year or two.”

Brainard pointed to fiscal stimulus from the Trump administration as support for the neutral level of rates, which then gives the central bank wiggle room for lifting the benchmark rate further without derailing growth.

She also cited that the labor market is strong and inflation is near the Fed’s 2% goal, making further gradual rate hikes appropriate in the next year or two.

Keep in mind that the latest set of FOMC forecasts suggests three hikes for this year, although many market participants expect four. The Fed is gearing up to release its updated forecasts in this month’s statement.

Signs of NAFTA progress?

Another day, another set of NAFTA talks! It’s back to the grind for Canadian Foreign Minister Freeland, who is said to be ready to return to Washington this Thursday to continue negotiations for a trade deal.

According to a source familiar with the matter, there will probably be “several more sessions” needed to hammer out an agreement and that Canada doesn’t feel “any tremendous pressure to get it done in the immediate short term.”

Still, the source added that negotiations have been “more constructive” and that an optimistic scenario would be to get a deal “in principle” by next week.

As in his previous statements, Canadian PM Trudeau reiterated in a testimony in front of Liberal Party lawmakers that they’d rather have no NAFTA deal than sign a bad one.

On the Mexican front, it has been reported that the country’s chief NAFTA negotiator is also heading back to Washington. Some believe that this hints that a trilateral deal might be ready for his go-signal while others think that Mexico might push forward with its bilateral deal with the U.S. instead.

Mexican Economy Minister Ildefonso Guajardo noted that Canada being on board would be a “great asset” but added:

“Now, if at the end we see that the scenario, which we don’t expect, but can’t be ruled out, is that there is not an agreement, Mexico has to take the next step – a bilateral accord, if it’s necessary.”

Major Market Mover(s):

AUD

The Aussie was able to finish strong, thanks to another boost from reports that the U.S. is ready to pursue more trade talks with China.

The WSJ reports that U.S. Treasury Secretary Mnuchin’s office sent an invitation to top Chinese officials for trade negotiations later this month.

AUD/USD jumped from .7115 to a high of .7182 and held its ground for the rest of the session; AUD/JPY popped up to the 80.00 mark then retreated slightly to 79.80; EUR/AUD slipped from 1.6276 to a low of 1.6196, and GBP/AUD fell to a low of 1.8223.

CAD

The Loonie was also able to squeeze out some gains, except against the Aussie and Kiwi, on optimism that NAFTA talks could produce a deal soon.

USD/CAD fell from 1.3076 to a low of 1.2980 before pulling up to 1.2997; CAD/JPY advanced from a low of 85.08 to a high of 85.82; EUR/CAD slid further to a low of 1.5094, and CAD/CHF is up to .7463.

Watch Out For:

  • 11:50 pm GMT: Japanese core machinery orders m/m (5.6% rebound from earlier 8.8% drop expected)
  • 11:50 pm GMT: Japan’s PPI y/y (no change from 3.1% expected)
  • 1:00 am GMT: Australia’s MI inflation expectations (previous reading of 4.0%)
  • 1:30 am GMT: Australian employment change (16.5K increase expected, -3.9K previous)
  • 1:30 am GMT: Australia’s unemployment rate (no change from 5.3% expected)
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