Forex Today: Risk-on powers Aussie; eyes on Italian/ UK politics ahead of Fed minutes

Wednesday’s Asian trading witnessed a sudden shift in the risk sentiment, as the demand for risk appetite returned, as reflected by the uptick in the US equity futures, Treasury yields and oil prices. However, the Asian stocks traded on a cautious footing ahead of the key Federal Reserve (Fed) events risks ahead.

Across the fx space, the AUD/USD pair broke higher to once again take out the 0.68 handle, but looming US-China trade anxiety combined with falling iron-ore prices capped the upside. The Kiwi traded on the back foot, but managed to hold the 0.64 handle, despite a drop in New Zealand’s Credit Card Spending. The USD/JPY pair staged a comeback and briefly regained the 106.50 level. However, the further upside lack follow-through amid looming trade and ahead of Fed minutes. Meanwhile, the safe-haven gold kept its range around the 1500 levels, less preferred in a risk-friendly market environment.

Among the European currencies, both the EUR/USD pair and Cable traded cautiously amid growing Italian and UK political uncertainty.  

Main Topics in Asia

US Sec. of State Pompeo: China trade war could end by 2020 election – CNBC

RBNZ Hawkesby: 50bps cut reduces chance of unconventional policy

Gold technical analysis: Bulls cheer pullback from 10-day EMA

PBOC sets Yuan reference rate at 7.0433

Japan to upgrade its estimate of North Korea’s nuclear weapons capability - Yomiuri

Irish Govt refuses to engage with UK about no-deal Brexit preparations – Irish Times

President Trump's team braces for a potential ‘moderate and short’ recession - Politico

UK house prices to fall in six months after no-deal Brexit - Reuters poll

WTI remains firm on API inventory data, rising geopolitical tension

RBA’s Lowe: Escalating US-China trade war is “very worrying”

Asian shares drop ahead of Fed minutes

Key Focus Ahead

There is nothing of relevance in the European calendar ahead, except for the second-tier UK Public Sector Net Borrowing data for July, dropping in at 0830 GMT. Therefore, the political risks around Italian coalition breakdown and Brexit will offer fresh incentives to the EUR, GBP traders. Also, the focus will remain on the UK PM Johnson’s meeting with the German Chancellor Merkel later today for some clarity on the Brexit issue.

The NA docket is busier one, with the Canadian inflation figures lined up for release at 1230 GMT, soon followed by the US Existing Home Sales data and the Energy Information Administration (EIA) Crude Stock data, due at 1400 GMT and 1430 GMT respectively. However, the main event risk for today remains the Federal Open Market Committee’s (FOMC) July meeting’s minutes. The minutes could offer fresh hints on the Fed’s rate cut expectations, in the face of growing US recession fears.

Meanwhile, fresh US-China trade updates, US President Trump’s comments and Brexit-related noise will also continue to play out ahead of the 3-day Fed’s Jackson Hole Symposium, starting this Thursday.

EUR/USD: Focus on Italian yields and Fed minutes

EUR/USD eked out gains on Tuesday despite the political uncertainty in Italy. Tuesday's gains could be short-lived if the prospects of snap Italian elections rise. Dovish Fed minutes needed to push EUR/USD higher to 1.1150.

GBP/USD: Cautious ahead of UK PM Johnson’s EU visit, Fed minutes

GBP/USD fails to carry the previous pullback as traders remain sidelined ahead of key events. Headlines from Germany helped trigger the earlier rise. All eyes on UK PM Johnson’s EU visit and FOMC minutes.

Italy's Gov't Collapses, Prime Minister Resigns: What's it Mean? What's Next?

If there is another election and Salvini wins, a Eurosceptic, anti-EU, anti-immigration politician will become the leader of the third largest country in the Eurozone.

Canadian CPI to drop sharply in July – Scotiabank

The Scotiabank analysts offer a sneak peek into what to expect from Wednesday’s Canadian Consumer Price Index (CPI) report slated for release at 1230 GMT.

FOMC Minutes July 30-31 Meeting Preview: The Fed vs the markets

July meeting cut the fed funds rate 0.25%, in the first reduction since December 2008. The Fed cited overseas threats to US economic growth not the expansion itself as the prime reason. Markets expect a second cut at the September 18th FOMC.