View from London: Dollar, Pound, Yen, NZD, AUD Await Summer Bounce
07/21/2017 2:51 am EST
The USD weakness isn’t only about EUR or other strength or US politics. It’s about the ongoing weaker data with Philly Fed and 2Q earnings theme of retail wreckage from Amazon (AMZN), writes Bob Savage, CEO of Track Research in Friday commentary from London.
It’s summer and people want to wear the least amount of clothing to stay cool and remain modest yet that minimalism has unintended consequences.
Some things are best left to the imagination. Perhaps naked central bank talk should take note. The lack of big news overnight and the minimalist approach of central bankers to changing anything leaves markets holding the weekly trend–U.S. dollar (USD/EUR) is sharply lower–blamed on politics rather than the FOMC-with EUR the leader while the British pound (GBP/USD) languishes in Brexit political doubts and the Japanese yen (JPY/USD) gains on the margins even as the carry trade wins everywhere.
The RBA Debelle’s speech makes clear that the RBA minutes were misread by the market–just because everyone is talking about higher rates doesn’t mean the Australians will follow, nor does discussion of a neutral rate 2% away from the present rate mean anything.
If the Australian dollar (AUD/USD) falls, that suits the RBA. So be it.
The contrast with the New Zealand FinMin was stark–as Joyce noted the stronger New Zealand dollar (NZD/USD) reflects stronger economic fundamentals: “The New Zealand economy and New Zealand businesses are performing very well at these current levels.” NZD gains on the day.
Minimalist action for a minimalist world. All of this drives the summer carry trade.
The focus that started the evening trading was on the US special prosecutor Mueller expanding his investigation into Trump’s business dealings with Russia. No stone left unturned to get to the full picture. This ups the risk that Trump may try to fire him, and that the Republicans lose faith in their leader.
Lack of any legislative progress after 8 months puts the Trump reform agenda at risk and puts the hope for lower taxes at bay–driving some fears for a larger confidence drop in business into 4Q.
The excuse of politics doesn’t fully cover that both the ECB and BOJ remain too easy for the global recovery and that they are missing an opportunity to normalize while the sun is shining. Then again, there isn’t any inflation.
Thus, we get the zombie production explanations that QE and negative rates impede the natural business cycles that wash out the inefficient and drive up productivity in the longer term.
The USD weakness isn’t only about EUR or other strength or US politics, it’s also about the ongoing weaker data with Philly Fed yesterday and the 2Q earnings theme of retail destruction from Amazon (AMZN) driving deflation everywhere nagging the markets.
The USD at 2-year lows against the EUR and 1-year lows for the USD index suggests the unintended consequences of minimalist FOMC hikes isn’t enough to cover the unpleasant realities of the present.
This means the hope for a summer bounce is going to have to wait for the weekend and more news. The channel support for USD is 94 then we have to go to 93.02 and June 2016 lows.
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