The Aussie dominated early session trading thanks to positive Australian and Chinese reports. Meanwhile, the dollar struggled against its fellow low-yielding currencies as traders remain jittery over escalating conflict against North Korea.
- AU AIG services index down from 56.4 to 53.0 in August
- AU current account balance shows 9.6B AUD deficit vs. 7.9B figure expected, 4.8B AUD shortfall in Q1
- NZ ANZ commodity prices down by another 0.8% in August
- China’s Caixin services PMI improves from 51.5 to 52.7 in August
- RBA keeps interest rate steady at 1.50% as expected
Aussie’s early session gains
The Australian dollar was the star of the mid-session trading, as positive reports from Australia and China boosted the currency.
The Land Down Under posted a current account deficit of 9.6 billion AUD, which is double the 4.8 billion figure in Q1 2017 and marks the largest deficit in three quarters.
Luckily for Aussie bulls, market players paid closer attention to the sharp decline of deficit on goods and services from 1.5B AUD to 196M AUD in Q2 2017. The Australian Bureau of Statistics now estimates that this will add 0.3% to tomorrow’s GDP release against earlier expectations of being a drag or a non-mover.
China’s Caixin services PMI also contributed to the good vibes. The survey came in at a three-month high index reading of 52.7 in August and eased concerns over the industry after official figures showed a slower pace.
Much like in the manufacturing industry, an increase in new orders pushed the index higher while improving market conditions and new marketing strategies also helped. More importantly, the increased demand led to the fastest pace of job creation in four months. This is good news for both the government and Australia’s exports, which want to see higher consumption in the world’s second largest economy.
North Korea jitters persist
Escalating geopolitical risks in North Korea clipped traders’ wings during the Asian session.
In today’s episode, South Korea’s Asia Business Daily, citing an unidentified source, shared that North Korea had been spotted moving a rocket that appeared to be an intercontinental ballistic missile (ICBM) towards its west coast.
This comes amid speculations that North Korea would fire an ICBM as early as September 9 when the kingdom celebrates its foundation. South Korea’s Defence Ministry has yet to confirm the move, however.
RBA keeps rates at 1.50% as expected
As expected, the Reserve Bank of Australia (RBA) kept its interest rates steady at 1.50% for the 13th consecutive month.
Philip Lowe and his team were generally upbeat, saying that recent data point to growth gradually picking up over the year. They shared that “[t]he decline in mining investment will soon run its course” and that “[r]esidential construction activity remains at a high level, but little further growth is expected.”
RBA was also chirpy over employment, saying that job growth is stronger across all states. It did recognize that wages remain low and will be low for a while yet, but it qualified that “stronger conditions in the labour market should see some lift in wages growth over time.”
The central bank is still NOT happy about a strong Aussie, however. It maintained that
“The higher exchange rate is expected to contribute to the subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”
In short, nothing new from the central bank today and the Aussie’s post-event price action reflected it. Traders will be on their toes for other reports from Australia due this week.
Major Market Mover(s):
Stealth transport or not, the news that North Korea is moving its ICBMs around was enough to spook investors. Chinese equities remained resilient, however, thanks to a positive PMI report.
Nikkei is down 0.55% to 19,401.50;
Australia’s A SX 200 is down by 0.10% to 5,696.40;
Hang Seng is up by 0.19% to 27,792.00, and
Shanghai index is up by 0.77% to 12,202.32.
The Aussie received support from a decline in goods and services deficit which is expected to contribute to a higher GDP report due tomorrow as well as a strong Caixin services PMI report. It showed limited reaction to RBA’s decision, however.
AUD/USD is up by 17 pips (+0.21%) to .7962;
AUD/JPY popped up to a high of 87.44 before settling down to 87.00;
AUD/NZD is up by 15 pips (+0.14% ) to 1.1101, and
EUR/AUD is down by 21 pips (-0.14%) to 1.4955.
JPY and CHF
Overall risk aversion sent traders into the arms of low-yielding currencies like the franc and the yen.
USD/JPY is down by 38 pips (-0.35%) to 109.28;
EUR/JPY is down by 34 pips (-0.26%) to 130.11;
GBP/JPY is down by 45 pips (-0.32%) to 141.30, and
NZD/JPY is down by 22 pips (-0.28%) to 78.36.
USD/CHF is down by 29 pips (-0.30%) to .9553;
EUR/CHF is down by 25 pips (-0.22%) to 1.1375;
GBP/CHF is down by 34 pips (-0.27%) to 1.2354, and
NZD/CHF is down by 16 pips (-0.23%) to .6851.
Watch Out For:
- 6:45 am GMT: Switzerland’s GDP (0.5% expected, 0.3% previous)
- 8:15 am GMT: Switzerland’s CPI (0.0% expected, -0.3% previous)
- 8:15 am GMT: Spain’s services PMI (56.9 expected, 57.6 previous)
- 8:45 am GMT: Italy’s services PMI (55.5 expected, 56.3 previous)
- 8:50 am GMT: France’s final services PMI to remain at 55.5?
- 8:55 am GMT: Germany’s final services PMI expected to remain at 53.4
- 9:00 am GMT: Euro Zone final services PMI to stay at 54.9?
- 9:30 am GMT: U.K.’s services PMI (53.3 expected, 53.8 previous)
- 10:00 am GMT Euro Zone retail sales (-0.2% expected, 0.5% previous)
- 10:00 am GMT: Revised GDP (q/q) expected to stay at 0.6%
- 10:10 am GMT: RBA’s Lowe scheduled to give a speech in Brisbane