While the U.S. financial markets were closed on Monday in observance of Labor Day, it was business as usual in the Euro region and other parts of the globe. The week promises excitement in the Forex as five major central banks are scheduled to hold their policy meetings. The first one of these meetings is that of the Australian Reserve Bank. The Federal Reserve has decided to wait and see what upcoming economic reports will show before raising the costs of borrowing money. And as the Fed winds down the stimulus program, the data becomes even more important. Analysts anticipate the strengthening of the U.S. Dollar in the weeks ahead, provided there are no surprises. On the commodities front, Gold Prices surged as investors kept an eye on the Ukraine, where the crisis has heated up. Concerns over the imposition of further sanctions against Russia caused risk aversion to increase in the market, and for Gold Prices to surge.
In the Euro region, expert traders say that the Euro is likely to take cues from what happens at the September 4th meeting. The European Central Bank is predicted to expand monetary easing given the latest bounty of disappointing metrics, including Monday's news showing that Germany's economy contracted, and the activities in its Manufacturing sector cooled off. The Euro plunged to the lowest rate in 20 months against the Swiss Franc after the Swiss National Bank's President, Jordan Thomas, indicated the importance of maintaining the 1.20 cap on the Euro-Franc exchange. Mr. Thomas echoed a previous message in which he suggested that the measure was implemented to avert the possibility of deflation or the likelihood of recession. The Euro also traded lower against the Sterling and the U.S. Dollar. The British Pound on the other hand rallied versus the greenback but the market is anxiously awaiting the election results out of Scotland. The markets don't expect the Bank of England to boost the benchmark interest rate at this meeting, but anticipated that the Index on Manufacturing would impact the Sterling. And they were not wrong in their forecast; the British Pound retreated from a session high against the greenback subsequent to news showing a slowdown in factory activities.
The Yen plunged against the U.S. Dollar and the remainder of its counterparts as investors wait for the Bank of Japan to deliver its policy decision. However, the U.S. Dollar rebounded slightly against the Yen later in the day though the advance was limited due to a hike in safe haven demand. Escalating tensions between the Ukraine and Russia prompted flight from risk assets.
Chinese macroeconomic fundamentals benefitted the New Zealand Dollar. The Kiwi climbed versus its U.S. peer after China announced that the Manufacturing Purchasing Managers Index slipped in August, denoting a slight dip, but remaining in growth territory. In the small nation, official domestic data confirmed that the Overseas Trade Index jumped in the second quarter. Australia's Dollar inched higher versus the greenback even though local data showed that Gross Corporate Operating Profits fell by 6.9 percent in the second quarter of the year, rather than the expected 1.8 percent.
EUR/USD-Germany Publishes Soft Data
The EUR/USD slumped towards the lowest rate in twelve months on speculation that the European Central Bank will increase quantitative easing, and as demand for safe havens weighed on the shared currency. According to sources, Ukrainian troops engaged in clashes with Russian military forces and are said to have lost ground. On the data front, Germany reported that the economy contracted 0.2 percent in the months of April through June, posting in line with expectations. And in other releases, Germany indicated that the Manufacturing sector grew, but at a rather slow pace. France provided lackluster news saying that its Factory activities went down at the fastest rate in more than one year, providing further evidence for policy makers to take the needed steps to bolster growth in the Euro region. Lastly, Markit Economics indicated that the E.U.'s Index reading for August's Manufacturing activities fell to 50.7, denoting that the sector is performing at the slowest since July of 2013. The Federal Statistics Office said that the drop in Gross Domestic Product in the largest economy of the Euro-zone is signaling that the recovery of the Euro area is in jeopardy. And while the contraction could be blamed on a mild winter that prompted companies to front-load production earlier in the year, the Bundesbank doubts it will see a rebound.
GBP/USD-Mortgage Approvals Rise
The GBP/USD dipped on Monday, despite positive data showing that Mortgage Approvals surpassed forecasts in July, denoting that the tougher lending measures set in place are not having a negative impact on the housing market. The data revealed that Mortgage Loans went from 67,085 to 66,569, while economists predicted these would slip to 66,000. Furthermore, the Bank of England said that Consumer Credit surged 1.1 billion Pounds in the same month. A jump in house prices has pointed to the recovery of the sector, but regardless of the positive metrics issued recently, the Bank of England is not anticipated to raise the borrowing costs when it meets this week. Other news showed that the Manufacturing PMI posted at 52.5 after coming in at 54.8, denoting that it has touched the lowest level since the middle of 2013.
NZD/USD-Trade Data Supports Kiwi
The NZD/USD rallied on Monday subsequent to the publication of upbeat economic reports out of the South Pacific nation, which indicated that the Overseas Trade Index went up by 0.3 percent in the months of April through June, beating forecasts for a decline of 2.3 percent. The Index posted a hike of 1.8 percent in the initial quarter of the year. The pair was also supported by data out of China which showed that the Manufacturing PMI dipped slightly from 51.7 to 51.1 in August, still denoting growth. The HSBC Final Manufacturing PMI fell to 50.2 in August, after printing at 50.3 in July, continuing in expansion territory. The NZD/USD sustained heavy selling pressure as market investors still believe the Kiwi is overvalued, as intimated by the Reserve Bank's Statement.
XAU/USD-Gold Supported By China's Data
The XAU/USD climbed during the Asian trading hours following the release of solid economic metrics out of China. The pair remained strong as demand for harbor assets rose in the market on the possibility that new sanctions could be levied on Russia. Futures for December delivery reached $1,287.70 a troy ounce on the Comex Division of the New York Mercantile Exchange, and rallied to $1,290.50 later in the day as sources reported a hike in tensions between Russia and the Ukraine. Recent reports indicated that Russia's President, Vladimir Putin called for negotiations on the "statehood" of the eastern and southern regions of the Ukraine. In the meantime analysts have said that Chinese jewelers are waiting for the shiny commodity to drop in price, while the country's net gold imports plunged in July to the lowest since summer of 2011 as China already amassed a supply in earlier months.
Today's Outlook
Today's economic calendar shows that Australia will release the RBA Rate Statement, GDP and Interest Rate Decision. Switzerland will publish GDP. The Euro-zone will post data on PPI. The U.S. will report on ISM Manufacturing PMI. And China will announce HSBC Services PMI.