AUD Flies High On JPY Weakness, Metals Up

through the European session as AUD/USD tested US$ 0.9022, EUR/AUD fell to A$ 1.4797, AUD/JPY appreciated to ¥87.40, and GBP/AUD tested A$ 1.7271. A$ shook off a decline in the June leading index to -0.2% from the prior reading of 0.0% and found a strong bid when it was reported that Chinese August HSBC/Markit flash manufacturing PMI improved to 50.1 from the prior reading of 47.7, and above expectations. Stronger Chinese manufacturing activity implies greater demand for input materials, and China is a major importer of Australian resources.

The Japanese yen was on the defensive across the board through the European session as USD/JPY rallied to ¥98.44, EUR/JPY climbed to ¥131.50, GBP/JPY reached ¥153.56, and CHF/JPY gained to ¥106.54. Japanese data have been quite weak lately, especially this week’s July trade balance numbers that dramatically worsened on account of the recently stronger yen. Today’s data saw July machine tool orders off 12.2% y/y, down from the prior print of 12.1%. The ¥98.75 area represents a major short-term technical level for USD/JPY with the ¥99.92 area as upside resistance. Many Japan-watchers expect the Abe government and Bank of Japan to step up rhetoric and seek additional JPY weakness.

The Euro found good demand against most peers through the European session as EUR/USD tested US$ 1.3363, EUR/GBP climbed to £0.8573, and EUR/CHF reached CHF 1.2346. The Eurozone August composite PMI rallied sharply to 51.7 from the prior reading of 50.5, exceeding expectations, as the Eurozone composite services PMI also climbed sharply to 51.0. German August manufacturing PMI improved to 52.0 and French manufacturing PMI was unchanged at 47.7. These data suggest peripheral Eurozone members are picking up some economic slack at the fastest pace since February 2012. Citigroup has changed its ECB forecast and no longer expects the ECB to reduce rates in Q4. Eurogroup Chairman Dijsseelbloem predicted Greece will require another aid package in 2014.

The Swiss franc was quite active through the European session as USD/CHF moved higher to CHF 0.9248, GBP/CHF slumped to CHF 1.4393, and AUD/CHF gained to CHF 0.8335. The Swiss July trade balance came in below expectations at CHF 2.38 billion, down from the prior reading of CHF 2.82 billion, as imports expanded a sharp 3.2% m/m and exports were -1.9% m/m.

The British pound was mostly pressured against rivals through the European session as GBP/USD tumbled to US$ 1.5575 and GBP/NZD fell to NZ$ 1.9845. Major U.K. data expected tomorrow include July BBA loans for house purchases and Q2 GDP numbers with a +0.6% q/q expansion expected.

Gold and Silver appreciated through the European session as Gold tested $1374.33 and Silver reached $23.276. Gold found support around the $1355.07 area and Silver found support from the $22.463 level. Stronger demand for the Metals complex as traders reacted to the FOMC meeting minutes from 30-31 July released yesterday. Some Fed-watchers believe the FOMC minutes were more pessimistic than expected, calling into question whether or not the Fed will taper QE policy starting next month. Gold and Silver also moved higher on the stronger Chinese PMI data.

Crude Oil was bid higher through the European session with Brent futures reaching $109.74 and WTI futures testing $104.57. Weekly U.S. DoE inventories data released yesterday saw crude oil inventories decline 1.428 million barrels, just below expectations, while the decline in gasoline inventories came in at 4.029 million barrels.