Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD rebound eases August losses
The US dollar climbed for a third-straight session on Friday as global markets remained positive and the US’s Dow Jones index hit new all-time highs.
The greenback’s late-month rally helped pare back the USD’s big losses in August – the USD index fell 2.3% for the month.
The USD was stronger even after key annual core PCE inflation came in at 2.6% versus the 2.7% expected making a Federal Reserve rate cut more likely later this month.
The NZD/USD was one of the best performers last month with the NZD/USD up 5.0% in August but the pair lost momentum and fell in the final two sessions of the month.
The AUD/USD gained 3.5% over August but also turned sharply and fell into a short-term downtrend by the end of the month.
In other markets, the euro and British pound saw sharper reversals after an initial strong start to August, while the USD/JPY recovered from the year’s lows after dominating headlines with its early-August meltdown.
Renminbi strength might be short lived
The Chinese yuan has been a recent standout with the USD/CNH falling to 16-month lows on Friday. We still think ongoing weakness in the Chinese economy means that RMB weakening can return.
That said, we anticipate that the Caixin manufacturing PMI, which tracks SMEs and exporters in China’s eastern coastal areas, will increase slightly from 49.8 in July to 49.9 in August, due to the continued strength of export growth.
While imports from China increased to 8.1% y-o-y from 6.7% during the same time, Korea’s export growth to China remained strong at 16.3% yo-y in 1-20 August.
Caixin manufacturing PMI numbers are due at 9.45am HKT (11.45am AEST).
Central banks and economic data in focus this week
FX markets this week will be driven by central bank decisions and key economic data releases from major economies. Notable events include rate decisions from the Bank of Canada and central bank of Malaysia, as well as GDP figures from Australia and the Eurozone.
The Bank of Canada’s rate announcement on Wednesday will be closely watched, with expectations for the policy rate to be cut by 25bps for a third straight meeting. This decision could impact the Canadian dollar’s performance against major currencies.
Australia’s Q2 GDP release on Wednesday is another key event. This data could influence the AUD’s trajectory, especially with the Reserve Bank of Australia still expected to hold rates steady unlike most other major central banks.
In Europe, final Q2 GDP figures for the Eurozone are due on Friday, with expectations of 0.3% quarter-on-quarter growth. This release may affect the EUR’s performance against other major currencies.
The US will release several important economic indicators, including ISM Manufacturing and Services indices, as well as the highly anticipated non-farm employment report on Friday. These data points could impact the USD, which saw the USD index up 0.3% last week.
Aussie, kiwi turn after major highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 2 – 6 September
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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