· The dollar edged lower across the board on Thursday, as risk sentiment stabilised after resilient Chinese trade data and Beijing’s efforts to slow a slide in the value of the renminbi encouraged investors to buy riskier currencies.
Against a basket of currencies the dollar was broadly steady at 97.58, but it weakened 0.1% versus the Australian dollar and the British pound
Indeed, market expectations for more than a quarter point rate cut from the U.S. Federal Reserve in September is still firmly baked into bond markets, despite an overnight bounce in global markets.
Those expectations forced the dollar to weaken also against the euro and the yen.
· The yen was a tad firmer at 106.185 per dollar. It touched 105.500 yen overnight, its strongest level since Jan. 3, before pulling back slightly.
“The yen’s appreciation versus the dollar may have slowed for now, but it stands to keep gaining in the longer term,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. “Its other peers, notably the antipodean currencies, have weakened severely and this provides overall support to the yen.”
· EUR/USD is trading around 1.1200, consolidating. Markets are calmer after China has fixed the yuan at a stronger level than expected and the Fed's Evans has said he is open to more stimulus.
From a technical perspective, the back-to-back formation on a Doji candlestick pattern on the daily chart indicates the indecisive market, making it prudent to wait for a convincing breakthrough a three-day-old trading range. The 100-day EMA, near the 1.1240-50 region, might continue to act as an immediate strong resistance, above which a bout of short-covering is likely to accelerate the up-move further towards reclaiming the 1.1300 round figure mark. The momentum could further get extended towards the 1.1330-40 resistance zone en-route the next major hurdle near the 1.1365-70 region ahead of the 1.1400 round figure mark.
On the flip side, any pullback below the 1.1200 handle now seems to find some support near the 1.1185 level, which is followed by support near the 1.1155-50 region. Failure to defend the mentioned support levels will negate prospects of any further recovery and turn the pair vulnerable to accelerate the slide back towards challenging the 1.1100 handle. A follow-through selling will suggest the resumption of the prior well-established bearish trend and pave the way for a further downfall towards testing the key 1.1000 psychological mark in the near-term.
· President Donald Trump made fresh attacks on the Federal Reserve Wednesday, saying on Twitter: “Our problem is a Federal Reserve that is too proud to admit their mistake of acting too fast and tightening too much.” “Incompetence is a terrible thing to watch,” he added.
· Fed official Charles Evans has said that economic headwinds mean cutting rates further could be reasonable. He is a known dove. President Donald Trump has repeated his calls for the Fed to do more.
· Lu Yu, a portfolio manager at Allianz Global Investors, said a weaker Chinese yuan versus the U.S. dollar and other currencies has helped Chinese manufacturers to sell their goods overseas. That’s despite the U.S. imposing 25% tariff on $200 billion of Chinese goods in May after trade negotiations stalled.
The depreciating yuan “is helping the exporters in China to export not just to the U.S. because it dampens the impact of the tariff hike, but also help them to export to other countries,” she told CNBC’s “Street Signs” on Thursday.
· China on Thursday reported trade data that was better than expected despite mounting economic pressure from elevated U.S. tariffs.
The Asian economic giant said its U.S. dollar-denominated exports in July rose 3.3% from a year ago while imports fell 5.6% during the same period. The country’s overall trade surplus last month was $45.06 billion, according to customs data.
China’s trade surplus with the U.S. was $27.97 billion in July, lower than the previous month’s $29.92 billion, the data showed. From January to July, China’s trade surplus with the U.S. has totaled $168.5 billion.
· The trade momentum seen in July may not last, said Julian Evans-Pritchard, senior China economist at consultancy Capital Economics.
“Looking ahead, exports still look set to remain subdued in the coming quarters as any prop from a weaker renminbi should be overshadowed by further US tariffs and broader external weakness,” he wrote in a note after China’s trade data release.
“Though August exports may benefit from some front-loading before the new tariffs go into effect on September 1st, this bump will probably be smaller than it was ahead of earlier rounds of tariffs as US port storage facilities have little spare capacity,” he added. “Meanwhile, a renewed slowdown in domestic demand looks set to weigh on import volumes.”
· China’s central bank on Thursday set the official reference rate for the Chinese currency at 7.0039 yuan per dollar — the weakest level since April 21, 2008.
Investors are watching the currency closely after the currency breached the important 7-yuan-per-dollar level on Monday. That prompted the U.S. Treasury department to label Beijing a currency manipulator.
It was the first time since the global financial crisis in 2008 that the midpoint was set weaker than 7 per dollar, according to Reuters.
· South Korea on Thursday held off a plan to drop Japan from the so-called “white list” of countries with fast-track export status, two officials at South Korea’s trade ministry said.
South Korean ministers were originally scheduled to decide on the plan at a meeting on Thursday, but they agreed to have further discussions on the matter, one of the officials said, without elaborating on the reasons for the delay.
The move comes after Japan granted its first approval for the shipment of a high-tech material to South Korea since Tokyo imposed tighter export curbs in early July.
· South Korean President Moon Jae-in said on Thursday that Japan imposing tighter export curbs against South Korea will undermine Japan’s international credibility for using its industrial advantage as a weapon against another country.
“Even if there are any gains, it will be short-lived. In the end it is a game without winners, where everyone, including Japan itself, becomes a victim.”
· UK politics: Foreign Secretary Dominic Raab said the EU's stance makes reaching a deal hard. His words continue the blame game around Brexit.
· Australia: After the RBA left the interest rate unchanged, the focus shifts to a speech by Governor Phillip Lowe and the release of the bank's Statement of Monetary Policy (SOMP) early on Friday where further monetary stimulus may be hinted at.
New Zealand: RBNZ Governor Adrian Orr repeated his stance that interest rates may turn negative.
· Oil futures jumped more than $1 a barrel on Thursday, recovering half of the nearly 5% losses in the previous session, on expectations that lower prices may lead to production cuts.
Brent crude had rebounded to $57.81 a barrel, up $1.58, or 2.81%, from its last close by 0634 GMT, while U.S. West Texas Intermediate (WTI) crude futures jumped $1.61, or 3.15%, to $52.70 a barrel.
Reference: CNBC, Reuters, FX Street
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