Talking Points:
- Aussie, Kiwi Dollars Underperform Following Disappointing Chinese Data
- US Dollar May Rise if Fed-Speak Boosts September Interest Rate Hike Bets
The Australian and New Zealand dollars underperformed in otherwise quiet overnight trade. The move followed disappointing Chinese economic data released over the weekend. Exports fell 8.1 percent year-on-year in July, marking the largest drawdown in four months. Meanwhile, the CPI report put the benchmark inflation rate at 1.6 percent, the highest since October.
Taken together, the outcomes pointed to the limits on stimulus expansion from accelerating price growth, even as headwinds facing the economy gather strength. That bodes ill for performance in Australia and New Zealand, for whom China is a leading export market. Negative spillover fears drove speculation about the possibility for further RBA and RBNZ interest rate cuts, weighing on the two currencies.
Looking ahead, a quiet economic calendar in European trading hours will see traders focus on commentary from Fed Vice Chair Stanley Fischer and Atlanta Fed President Dennis Lockhart. Both officials are current members of the US central bank’s FOMC policy-setting committee, putting them at the heart of the decision-making process leading to the first post-QE interest rate hike.
Traders will comb the pair’s remarks for clues supporting speculation that “liftoff” will commence at next month’s policy meeting. While the majority of analysts seem to favor tightening in September (according to research aggregated by Bloomberg), Fed Funds futures see investors pricing in a delay until October. With that in mind, hawkish rhetoric seems to have room to boost the US dollar as traders account for the likelihood of sooner tightening.
