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Since Japan’s markets were out on holiday and no major catalyst popped up, traders mostly extended this week’s trends.

  • Japan’s markets out on Mountain Day holiday
  • Business NZ manufacturing index down from 56.0 to 55.4 in July
  • NZ food price index slips by 0.2% in July vs. 0.2% gain in June
  • RBA Governor Lowe: “Further rise in AUD would cause slower inflation, employment”
  • RBA’s Lowe: “The next move will be up rather than down”
  • RBA’s Lowe: “We would be prepared to intervene…but they are pretty remote scenarios”

Major Events/Reports:

Philip Lowe’s speech

In a testimony to the House of Representatives’ Standing Committee on Economics, RBA Governor Philip Lowe mostly took the opportunity to jawbone the Aussie some more.

The RBA head honcho was upbeat on the economy, saying that it will accelerate to 3% as declining mining investments lets up and liquefied natural gas exports come online.

However, he also said that “Inflation is going to be below 2.5 per cent for quite a while, the unemployment rate is still a bit high.” Not good, especially since also hinted that employment remains one of the RBA’s key metrics in policymaking.

What caught traders’ attention, though, is Lowe’s remarks on interest rates and the Aussie. See, while he believes that it’s “reasonable” to assume that “the next move will be up rather than down,” he also thinks that any tightening will be “quite some time away” yet.

Lowe also repeated the RBA’s concerns over a strong Aussie, saying that “Further appreciation, all else constant, would cause a slower pick-up in inflation and slower progress in reducing unemployment.

And while he shared that the RBA is “prepared to intervene in the foreign exchange market,” He also admitted that “they are pretty remote scenarios.

Despite the relatively upbeat tone on the economy and interest rates, Asian session traders chose to sink their teeth into Lowe’s statements over not wanting a strong Aussie and threats of a possible intervention.

More risk aversion

Just when traders were ready to close shop ahead of the weekend, Trump and Kim Jong-Un once again fired up the markets.

Late yesterday Trump shared that his statements about North Korea seeing “fire and fury” might not have been “tough enough.”

Fortunately, U.S. Defense Secretary Mattis threw water to the fire when he shared that the U.S. prefers to use diplomatic approach regarding North Korea’s threats.

North Korea wasn’t having it, though. Earlier today Korean Central News Agency (KCNA) revealed that the Pyongyang government has vowed to “wipe out provocateurs” and that the U.S. will suffer “a shameful defeat and final doom” if it continues its sanctions and military pressure.

You can’t get better script from a reality show, people!

China added to the tension by revealing – through by the ruling Communist Party’s official People’s Daily – that “China will stay neutral” if North Korea launches missiles to U.S. soil and that “China will prevent” the U.S. and South Korea if they decide to carry out strikes to “overthrow the North Korean regime.”

Naturally, the Asian bourses reacted to the escalating tensions. Nikkei is out on a holiday but

  • Australia’s A SX 200 fell by 1.27% to 5,688.00,
  • Shanghai index is down by 1.51% to 11,469.34, and
  • Hang Seng is down by 1.72% to 26,971.50.

Major Market Mover(s):

AUD

The Aussie was dragged lower by a one-two punch of overall risk aversion in the markets and a bit of jawboning from RBA’s Philip Lowe.

AUD/JPY is down by 53 pips (-0.62%) to 85.52,
AUD/USD is down by 34 pips (-0.43%) to .7848,
AUD/NZD is down by 30 pips (-0.28%) to 1.0797, and
AUD/CHF is down by 52 pips (-0.69%) to .7535.

JPY and CHF

Low-yielding currencies like the yen and franc got another boost from escalating tensions between the U.S. and North Korea.

USD/JPY is down by 18 pips (-0.17%) to 108.98,
USD/CHF is down by 21 pips (-0.22%) to .9603,
EUR/JPY is down by 20 pips (-0.16%) to 128.32, and
EUR/CHF is down by 24 pips (-0.21%) to 1.1307.

Watch Out For:

  • 7:00 am GMT: Germany’s final CPI expected to remain at 0.4%
  • 7:00 am GMT: Germany’s wholesale price index (0.3% expected, 0.0% previous)
  • 7:45 am GMT: France’s final CPI expected to remain at -0.3%
  • 7:45 am GMT: France’s preliminary NFP (q/q) expected to remain at 0.4%