Daily Forex Fundamental Overview

Fundamental Analysis

USD

“At this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago”

- William Dudley, New York Fed President

Orders for US long-lasting manufactured goods increased in July, while demand in a category that tracks business investment plans surged the most in 13 months. The Commerce Department reported that orders for durable goods rose 2% last month following the 4.1% surge in the preceding month. Orders for non-defence capital goods excluding aircrafts, a proxy for private sector investment plans, advanced 2.2% in July, marking the biggest increase since June 2014 and following the 1.4% increase in June. Excluding transportation, core durable orders edged 0.6% higher, which was stronger than the 0.4% gain markets had expected and the June print was revised to a 1% gain compared with a 0.8% increase estimated previously. While July data is encouraging, US manufacturers still face headwinds due to a stronger Dollar and economic turbulence in China, the world’s second biggest economy.

Meanwhile, New York Fed President William Dudley said that prospects of interest rate hike in September “seems less compelling” given the recent market turmoil, hinting that fears of China’s economy slowdown are impacting Fed’s monetary policy. However, Dudley warned about overreacting to “short-term” market volatility and kept the door open to hiking rates during Fed’s meeting on September 16-17.

GBP

“Retail growth is continuing at a steady pace and it's really encouraging to see firms' investment intentions picking up alongside more jobs being created in the sector.”

- Rain Newton-Smith, CBI Director of Economics

UK annual retail sales growth surprisingly increased this month, due to significantly low cost of living and rising real earnings. The Confederation of British Industry´s distributive trades total sales index surged to +24% in August following a print of +21% a month before, reflecting a pace of growth that was considerably above average for that time of year. The sales in August were supported by clothing and grocers’ sales after two-month stagnation. The report also indicated that sales volumes are predicted to increase further in September. Companies increased their payrolls for the first time this year given expectations for a continued improvement in the business conditions over the coming quarter. Expectations for recruitment were at their best since May 2000.

According to the official data, declines in fuel sales as well as clothing and food translated into total retail sales volumes rise by just 0.1% in July. The latest report also confirmed total retail sales fell during the second quarter to 0.7% growth, compared with 0.8% in the first three through March. Despite slowing, quarterly growth should still have a positive contribution to the second-quarter economic output, by approximately 0.04%. Expectations for domestic spending in the UK have been mixed recently, with some analysts warning it could deteriorate even further once the BoE begins to hike its interest rate from the record low of 0.5%, given the burden of household debt and rising house prices.

AUD

“Liaison suggests that businesses are waiting to see a sustained increase in demand before committing to major new investment projects. Mining investment continues to decline, as more projects reach completion, but few new projects commence”

- RBA’s Statement on Monetary Policy

Australian capital expenditure dropped in the second quarter, but outlook for planned investment improved slightly. Private capex plunged a seasonally adjusted 4.0% in the three months through June, the Australian Bureau of Statistics reported, coming in weaker than economists’ forecast for a 2.5% decrease. However, the figure improved after a revised lower 4.7% slump posted in the first quarter of this year from a 4.4% decline estimated earlier. Yet, it was the third quarter of contraction. Australia’s mining sector led the fall in capex, with companies taking a cautious view to new investment decisions due to soft economic conditions. Capex in the mining space plummeted 11.3% over the quarter, while manufacturing was down 3.4%, whereas other selected industries rose 4.4%.

Slowing activity in the mining sector in recent years stems from a steep decline in global commodity prices, including iron ore, one of Australia's key export products. Prices for the steel-making component have plunged from above $130 per tonne in late 2013 to around $50 per tonne recently. Reserve Bank of Australia board members have tried to predict how large the decline in mining investment will be, and therefore the aggregate impact on economic growth, unemployment, as well as household spending.

CNY

“It not the first time for China to roll out jumbo easing, however it is the first time for China to ease aggressively when the consensus view is shifting towards RMB depreciation. Therefore, we see a good chance that RMB may weaken further in both onshore and offshore market.”

- OCBC

The People’s Bank of China injected 140 billion yuan into China’s economy on Wednesday, in latest attempt to prop up slowing economic growth, fuelling investors concerns over a “hard landing”. The PBoC injected billions of yuan into the interbank money market through a short-term liquidity operation. The central bank introduced SLOs in 2013 as a supplement of its monetary policy tools in a bid to smooth fluctuations in liquidity and stabilize interbank funding costs. In addition to that, the central bank cut the one-year benchmark bank lending rate by 25 basis points and reserve requirements by 50 basis points for most big banks. The People's Bank said that the interest rate cut was to reduce "the social cost of financing to promote and support the sustainable and healthy developments of the real economy". It also acted to raise the flow of money in the economy by cutting the amount of cash banks must keep in reserve, effectively freeing them to lend more cash.

The recent moves are aimed at supporting slowing economic growth in the world's second biggest economy at a time of extreme volatility in Chinese as well as global stock markets. Nevertheless, markets were little influenced by the central bank’s action. Chinese stocks closed before it was announced, with the Shanghai Composite index ending down 1.3% on Wednesday.