RBA’s Stevens lights the fire under AUD, dragging other risk currencies along.


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jun. New Home Sales out at 384k vs. 352k expected and revised 346k prior

  • US Jun. New Home sales out at +11.0% m/m vs. +3.0% expected and revised +2.4% prior

  • US Jul. Dallas Fed Manufacturing Activity out at -25.5% vs. -11.0% expected and -20.4% prior

  • NZ Jun. Trade balance out at –NZ$417 mln vs. +NZ$265 mln expected and revised +NZ$907 mln prior

  • NZ Jun. Exports out at NZ$3.20 bln vs. +NZ$3.44 bln expected and +NZ$3.96 bln prior

  • NZ Jun. Imports out at NZ$3.62 bln vs. NZ$3.17 bln expected and revised NZ$3.06 bln prior

  • AU May Leading Index out at -0.1% vs. revised +0.3% prior

  • AU Q2 NAB Business Confidence out at -4 vs. -24 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Sweden PPI (0730)

  • Sweden Retail Sales (0730)

  • UK CBI Distributive Trades Survey (1000)

  • US Redbook weekly Retail sales (1255)

  • US S&P/Case-Shiller Home Price Index (1300)

  • US Consumer Confidence (1400)

  • US Richmond Fed Indices (1400)

  • US Fed’s Yellen speaks (1635)

  • US ABC Weekly Consumer Confidence (2100)

  • US Geithner/Clinton post-US-China SED Press conference (2045)

Market Comments:

The risk appetite theme continued overnight, albeit at an apparently slower, more cautious pace. US new home sales for June generally favoured this scenario with sales up 11% m/m, the biggest gain in 8 years and to their highest level since November 2008 vs. +3.8% expected. However one potential fly in the ointment appeared when the Dallas Fed manufacturing index came out at -25.5% from -20.4% previously and resulted in only marginal gains on Wall St.

Currencies attempted to break out of the recent ranges as the initial risk appetite theme remained dominant and pushed the USD index down to its lowest level since early June, but all majors currencies seemed to lack momentum at lofty levels. EUR struggled to challenge 1.43, even though it was buoyed by German consumer sentiment hitting its highest level in almost a year, on reported options strike defense. GBP looked nervous above 1.65 on bearish press headlines of late while AUD failed to break new highs for the year. CAD managed to hit new 2009 highs before rebounding late in the session.

As a result, Asia opened back in familiar ranges and once more looked to equity markets to determine the direction within them. Early data gave the NZD a kick after NZ reported an unexpected NZ$417 mln trade deficit in June, a sharp turnaround from the NZ$907 mln surplus in May. While some one-off items influenced the overall figure, notably aircraft purchases, an 11.0% y/y fall in exports is seen as a disturbing development, partly due to the weak dairy export market but maybe also attributable to the NZD’s recent strength. Other currencies were steady with a slight hint of risk-aversion/profit-taking during the morning.

An article in the FT highlighted that most of the explosive bank lending in China during the first half of the year may have been channeled to real estate and stock market ends, leading to the authorities to order banks to ensure loans are channeled into the real economy. Another reason why equity markets were a touch more hesitant in Asia, S&P futures still marginally in the red at time of writing and the Nikkei closed 0.1% lower.

Australian data was generally above forecast with the NAB Q2 Business Confidence Index jumping a solid 20 points to -4 from -24. Yet, the AUID refused to budge after the data and we had to wait for comments from RBA governor Stevens to ignite activity. He sounded more bullish on the economy during a speech on “The Challenges for Economic Policy”, saying that upside risks were probably more of a balance to downside risks than before. He added that the downturn may not be a fierce as expected with unemployment rising less than feared. A second wave of comments hit later where he added that the Australian current account deficit had proved manageable and Australia remains attractive to investors. Markets took the overall comments to imply a bias more towards potential rate hiking rather than easing and AUD rose challenge the 2009 high at 0.8265, reaching its highest since September 2008 at 0.8277.

We have a bit more data to focus on today but equity direction is still likely to be the main driver. In Europe we will see Swiss consumption, UK CBI distributive trades while in the US it’s the S&P/Case Shiller house price index (which will either confirm or refute the recent set of housing data), consumer confidence (a potential tripwire?), Richmond Fed manufacturing index and the weekly ABC consumer confidence that await. The first of the US Treasury’s record amount of bond auctions is on tap tonight with $42 bln worth of 2-year notes up for grabs.
The shorter tenors proved more popular at the last auction and could be a gauge of further interest later in the week.