Annualized GDP for Q2 Printed Slightly Higher than Forecast.

Key Movers

The United States Dollar opens mixed against a basket of currencies, beginning this morning at 94.60 on the US Dollar Index which is a no change reading. The Greenback enjoyed an uneventful day yesterday with little to excite markets with the focus firmly fixed on on-going trade discussions.





The day did have a few notable releases with the quarter on quarter preliminary GDP posting a better than expected result of 4.2%. Crude Oil inventories also fell further to -2.6m barrels reflecting the growth and inflationary pressures in the US economy. Despite the positive economic news, the Greenback did very little as the focus remained on on-going trade talks. With the US-China trade war looming in the background, the market focused primarily on the revised NAFTA dialogues in North America. Markets reacted positively to the news that Canada and the US were approaching a deal, further strengthening the risk-on environment seen throughout the week.


This morning we have had a slew of economic data out for the US, continuing jobless claims posted a 1708k better than last weeks 1728K. Core PCE Price index YoY and MoM both printed a notch higher at 2.3% and 0.1% respectively. Personal income hit consensus of 0.3% while personal spending MoM was just above consensus of 0.35 and printed a 0.4%. Initial jobless claim rose slightly to 213K for last weeks print of 210K. Market participant attentions will remain fixed on on-going trade talks and the headlines.


During the Asian trade on Thursday, the EUR/USD further declined to carry losses from the previous North America session. As we saw the European markets open we had the release of German GfK Consumer Climate and the Euro was dragged further touching a low 1.1652. The survey showed that mood among German shoppers had deteriorated unexpectedly for the second month in a row heading into September. The GfK research institute said its consumer sentiment indicator, based on a survey of around 2,000 Germans, fell to 10.5 going into September from 10.6 a month earlier casting some doubt about the strength of a consumer-led upswing in Europe's largest economy.

German Import Prices released at 5% better than previous, but below expectations. Preliminary German CPI remains flat y/y at 2%. German unemployment change print -8K worse than forecasts of +5K, German unemployment rate remains at the 5.2%. The EUR remains close to the 1.17 handle against the USD and 1.51 level against the CAD.


The drop, however, was short-lived as we saw sentiment improve in the markets and the US dollar Index pullback. Despite US GDP figures recording growth for the June quarter coming in at 4.2% the EUR/USD pushed through resistance levels of 1.17 and reached a high of 1.1718.


German Import Prices released at 5% better than previous, but below expectations. Preliminary German CPI remains flat y/y at 2%. German unemployment change print -8K worse than forecasts of +5K, German unemployment rate remains at the 5.2%. The EUR remains close to the 1.17 handle against the USD and 1.51 level against the CAD.


The Great British Pound rallied through trade on Wednesday outperforming all other G10 counterparts following positive commentary from EU negotiators. Chief EU mediator Michael Barnier said the EU was prepared to offer the UK a deal that it does not have with other trading partners, a deal that would include an “ambitious free trade agreement.” While the comments were caveated with the usual warnings, they offer investors a reprieve from the recent criticism of rhetoric hinting toward a “ No Deal Divorce.” Sterling surged back through psychological resistance at 1.30 to touch 1.3032.



While the market is likely to remain nervous until greater clarity and specifics are available, the latest comments provide renewed hope a deal can be struck and given then heavy shorting of GBP positions through the last month enabled the strong market response yesterday




With little of note on the macroeconomic docket, today attentions turn to ongoing Brexit chatter for direction moving forward. Should optimism hold, we would expect Sterling to maintain moves above 1.30 through the short term.


The Australian Dollar opens this morning as one of the worst performing currencies in the North American session shedding 45 points to 0.73. The Aussie never recovered in the Asian session and drop to a low .7275, However, it looks to open this morning at the 0.73 handle, after commodity prices and a softening USD support the Aussie somewhat.




The catalyst for the fall was driven by Westpac’s decision to raise variable mortgage rates by 14bps, the first of the four major banks to do so. Westpac cited short-end funding costs as the reason for the increase with the BBSW rising 16bps in the 3-month bank bill market. Australian markets responded almost immediately with bond markets also feeling the pinch. Analysts suggest the fall may have implications on the RBA’s interest rate guidance with an even slimmer chance of an interest rate hike now on the cards. Currently, the first hike is now priced for Q3 of 2020.





It wasn’t all negative news for the Aussie however with a stark recovery in commodity prices driving demand for the currency. While only marginally affecting the Aussie, the currency did manage to hold above the 0.73 mark with the support of commodity markets. Demand for the Pair was also heightened as market concerns over a tariff ridden world slowly subside on the news that the US is brokering new deals in North America. The news supported a risk-on market sentiment that saw demand for the Aussie continue to build. Nevertheless, none of the news could help the Aussie too much as it opens this morning firmly focused on interest rates.


The New Zealand dollar maintained a mostly tight trading band through Wednesday, edging back below 0.67 before rallying into the close. Having held onto moves above resistance at 0.67 for much of the Asian session, the NZD followed its antipodean counterpart lower touching intraday lows at 0.6685. News Westpac will raise Australian homeowners variable mortgage rates by 14bps surprised markets and forced the AUD sharply lower as the RBA will likely now extend its period of neutral monetary policy through H1 next year. The NZD surged against the AUD, advancing some 7- points to test 0.92.





Attentions now turn to ANZ business confidence report. A soft read will only further dampen business investment and consumer expectations and do little to force the RBNZ to reconsider its current policy setting. We expect the NZD will continue to meet selling pressure on moves approaching 0.6750 with support through the short term holding at 0.6560.