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As US markets continue to decline, with the Dow Jones losing 0.57% and the Nasdaq losing 1.05%, risk aversion is still evident. Market investors will pay special attention to Chinese trade statistics throughout the Asian session. Positive results might allay worries about the Chinese economy’s current status.
EUR/USD reached fresh monthly lows but managed to remain above 1.0700. It finished flat after a timid recovery. Eurostat will release a new estimate of Q2 employment and GDP. Germany will report July Industrial Production.
Economic Data
Despite economic differences with China and Europe and forecasts that the Federal Reserve will need to maintain interest rates over 5% for a longer period of time, the US dollar is still strong. In response to the US ISM Services PMI exceeding expectations and reaching a peak over 105.00, the US Dollar Index increased moderately by 0.05% before declining. The 10-year yield increased to 4.30%, strengthening the US dollar even more. US Treasury yields also increased.
Key Developments
According to Federal Reserve’s Beige Book, economic growth was modest during July and August. It added that job growth was subdued. “Most Districts reported price growth slowed overall, decelerating faster in manufacturing and consumer-goods sectors,” the Beige Book noted.
The ECB is torn between whether to hike rates again or not next week. We think the Governing Council will pause, but signal preparedness to do more at upcoming meetings, if needed. Both inflation and growth forecasts could see downward revisions.
GBP/USD fell to as low as 1.2481, the lowest level in three months, and then rebounded to 1.2500. The pair continues to move with a bearish bias, with the 200-day Simple Moving Average (SMA) at 1.2430 in sight. The Pound was among the worst performers, weakened after comments from Bank of England officials.
USD/JPY is still trading over 147.50, which is its highest level since November and has alerted the market to a probable intervention by Japanese authorities. It has only involved verbal intervention thus far.
The second quarter of the Australian economy showed a 0.4% expansion, which was higher than the 0.3% market expectation, slowing down less than anticipated. In addition, Q1 statistics were upgraded. Even though the decision was favourable, the Australian Dollar did not change. After a precipitous decline on Tuesday, AUD/USD finished flat, with the pair holding between 0.6355 and 0.6400. Australian trade data is due on Thursday, but Chinese trade data is more crucial.
USD/CAD hit fresh monthly highs but then pulled back below 1.3650. The pair remains influenced by high crude oil prices. As expected, the Bank of Canada kept its key interest rates unchanged at 5%. Today’s decision was widely expected, particularly in the wake of the Q2 GDP data which even a hawkish central bank couldn’t ignore. We don’t see any reason for forecasters or investors to alter whatever views they had prior to today’s news.
The day after Russia and Saudi Arabia surprised the market by announcing an extension of voluntary oil production cuts, crude oil prices soared and rose again on Wednesday. The WTI barrel posted its highest close since November at $87.50.
Metals continue to decline. Gold dropped to $1,915, matching the 20-day SMA, and posted its lowest close in almost two weeks. Silver tested $23.00 and recorded its sixth consecutive decline; however, it finished slightly away from the lows.
During the Asian session, the focus will be on trade data from Australia and China. Additionally, New Zealand will report Q2 Manufacturing Sales. RBA Governor Lowe will deliver a speech. Japan is set to release the preliminary Leading Economic Index for July. Later in the day, the US will release the weekly Jobless Claims report.
Also Read:
Could gold reshine on Thursday?
Biden administration reinstates halted oil drilling permits in Alaska
USD/CAD poised to break through despite the BoC’s hawkish stance
Beige Book: Economic growth modest in July, August, job growth was subdued
Oil prices pull US stocks lower
