Overview
USD traded higher Friday as the trade attempts to balance risk appetite versus safety. The AUD rallied to 11 month high in overseas trade supported by comments from RBA Governor Stevens that "normal the interest rate would be above the current 3% rate." Stevens's comments fueled RBA rate hike speculation and demand for the AUD. AUD has been one of the primary currencies benefiting from optimism about the outlook for global recovery and improving risk appetite. Improvement in risk appetite has been fueled by rising global equity markets, this week's FOMC policy statement which said that the US economy is leveling out, report that growth returned to Germany and France and Stevens comment that the global outlook is "distinctly" better. Despite these factors, concern about economic outlook in China emerged this week with a warning of overcapacity in China's industrial sector and today's report in the China Daily that China has banned expansion of steel production. The Shanghai index traded over 3% lower Friday in reaction to the news of the steel production ban. The drop in China's equity market took away some of the recent improvement in risk sentiment and sparked safe haven demand for JPY and AUD gave back all its early gains. In addition, Thursday's report of weaker than expected US retail sales and an unexpected rise in US jobless claims clouds the outlook for US recovery and the rally in US equity markets has stalled. Today's US economic data was mixed with July CPI flat and annual CPI falling the most in 59 years, industrial production and capacity utilization rising more than expected and Michigan consumer sentiment weaker than expected. The Fed is unlikely to rush to raise rates as the economy recovers because today's US CPI report shows there is little sign of inflation risk in the US and recovery is likely to be weak.LINK...
USD traded higher Friday as the trade attempts to balance risk appetite versus safety. The AUD rallied to 11 month high in overseas trade supported by comments from RBA Governor Stevens that "normal the interest rate would be above the current 3% rate." Stevens's comments fueled RBA rate hike speculation and demand for the AUD. AUD has been one of the primary currencies benefiting from optimism about the outlook for global recovery and improving risk appetite. Improvement in risk appetite has been fueled by rising global equity markets, this week's FOMC policy statement which said that the US economy is leveling out, report that growth returned to Germany and France and Stevens comment that the global outlook is "distinctly" better. Despite these factors, concern about economic outlook in China emerged this week with a warning of overcapacity in China's industrial sector and today's report in the China Daily that China has banned expansion of steel production. The Shanghai index traded over 3% lower Friday in reaction to the news of the steel production ban. The drop in China's equity market took away some of the recent improvement in risk sentiment and sparked safe haven demand for JPY and AUD gave back all its early gains. In addition, Thursday's report of weaker than expected US retail sales and an unexpected rise in US jobless claims clouds the outlook for US recovery and the rally in US equity markets has stalled. Today's US economic data was mixed with July CPI flat and annual CPI falling the most in 59 years, industrial production and capacity utilization rising more than expected and Michigan consumer sentiment weaker than expected. The Fed is unlikely to rush to raise rates as the economy recovers because today's US CPI report shows there is little sign of inflation risk in the US and recovery is likely to be weak.LINK...
