Emerging market FX fell sharply

EUR/USD

EUR/USD was initially supported by some deceptively favourable CPI readings from across Europe, as German and Spanish inflation numbers allowed the ECB to breathe a sigh of relief. This was twinned with a better-than-expected M3 Money Supply reading for July, rising by 1.5% Y/Y vs. Exp. 1.3%, showing further evidence that ECB action may not be necessary in the near-term. Despite this, private sector loans fell 1.6% against an expected fall of 1.5%, however this issue is expected to be tackled by the upcoming TLTROs. The somewhat better than expected inflation data lifted EUR/USD above the 1.32 handle early doors, however this was short-lived as a deteriorations of eastern Ukraine sharply hurt sentiment across the continent, sending EUR/USD to lows of 1.3160, where barrier defence emerged to stem any further losses.

Emerging Market FX

After Ukrainian President Poroshenko cancelled a visit to Turkey in order to focus on the Russian troop activity in Ukraine, emerging market FX fell sharply, particularly in eastern Europe. The RUB saw the sharpest weakness, falling over 1.75% against the USD as markets feared the sanctions threat against Russia had reared its ugly head once more. The downside in the RUB has lifted USD/RUB within striking distance of the yearly highs at 36.9029 struck in early March. Sharing a border with Ukraine, both the HUF and PLN weakened sharply alongside the reports that a new south-eastern front had appeared in Ukraine, with Russian troops supporting pro-Moscow militias in the tactical towns of Novoazovsk. Despite Poland’s central bank governor Belka stating that the Ukraine crisis is no disaster for Poland, the PLN remains on track for the worst session of August, as EUR/PLN approaches YTD highs of 4.3104.

AUD/USD

AUD/USD remained on the front foot for much of the session, as the USD’s retreat from 11-month highs (primarily on the back of softer UST yields) and a strong data set as Q2 Australian Private Capital Expenditure posted the first positive reading since September 2013 (1.1% vs. Exp. -0.9% (Prev. -4.2%, Rev. -2.5%). The result is expected to extend the rate pause at the RBA ahead of their rate decision next week, especially given the recent poor data out of Australia. The pair successfully took out stops on the way through the 100DMA at 0.9342 as well as the 50DMA at 0.9359. The downside in industrial metals overnight (Chinese iron futures struck contract lows after falling over 3%) prompted by a clampdown on Chinese credit financing failed to take the shine out of the currency, with AUD/USD now eyeing a break of 0.9400 for first time since late July.