Markets have begun to show signs of stabilizing overnight.
Asia equity futures traded mixed, and the US benchmark S&P 500 closed unchanged.
Crude oil initially declined following the latest inventory survey which pointed to a surprising 2.2 million barrel build. However, prices stabilized quickly and are marching higher at this morning NYMEX and ICE Futures open.
The Australian Dollar – China Conundrum
Overall risk sentiment was mixed overnight, with the Australian dollar trading in relatively tight ranges with good offers appearing at .7635-40 resistance levels.
Likely weighing on Aussie sentiment is the disappointing Chinese trade data, which is dampening sentiment towards Asia FX and regional risk outlook. The growing economic risk in Mainland is a potential hot spot as we approach tomorrow’s China Q2 GDP release, which could spring Mainland Monetary Printing Presses into action.
If the Pboc slashes interest rates, it should be a short-term positive for commodity prices and the Australian dollar should benefit.
The pound has traded aggressively lower overnight on expectations of the BOE easing, but so far we have not seen a significant uptick on the “Safe Haven” Australian dollar appeal.
In general, the market remains focused on the proposed Japan stimulus package, but the market is sitting tight awaiting confirmation of the size of the stimulus efforts. Enough smoke signals are indicating this could well be the mother of all stimulus efforts and may be a game changer for USD/JPY and risk sentiment in that regard.
The Australian dollar will be a beneficiary of this unprecedented easing, especially the AUD/JPY trade.
Today’s Data Front:
Australia July Consumer Inflation Expectations came in at 3.7 % versus 3.5 % (7-month high), likely reflecting the significant rise in fuel prices. Predictably there’s been a small uptick on the Australian dollar on the surprising uptick.
Australia Unemployment Rate came out in line (5.8 % vs. 5.8 % expected). However, the market was pre-positioned for a slowing jobs market, and we see a bounce higher to .7635 on the print. If we factor in the external buoyant risk and yield sentiment into the equation, the report should provide decent tailwind support for the Australian dollar.