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Australian jobs up by 50.9K, the show goes on for Theresa May and Fed Chairman Powell's hawkish address


Last week started with some positive releases for the USD, with an uptick in retail sales and improvements in manufacturing indices, but despite this, the US dollar fell through trade during the week's opening sessions and edged marginally lower as investors capitalized on recent gains and opted to take profit ahead of the crucial Fed testimony.

This was the new Fed Chairmans Jerome Powell first testimonial before the U.S Senate Banking Committee and as well as the House of Representatives Financial Services Committee. Powell’s Senate address hit on a continued expectation for US Growth and a stronger economy while downplaying the expected effect of recent trade hostilities on Fed plans for monetary policy. Mainly dismissing suggestions the trade war will dent domestic growth Powell has left the door open for a possible two additional rate hikes this year driving the dollar to highs just below the 12-month peak.

Powell's comments were viewed as hawkish for the US economy, and the greenback found further footing against its G10 counterparts. However, the current trade dispute will continue to weigh on investors conscious and likely temper aggressive upside moves, at least into late August when the newly announced 10% tariffs on 200bn in Chinese exports are introduced.

The CAD started last week on the good foot, taking advantage of broad, although light, USD weakness. The CAD was able to outperform the greenback despite declining WTI crude prices, on the other hand, the USD couldn’t outperform other major currencies despite a spike in US yields.

The primary catalyst of the loonie strength was the Existing Home sales data, which came much stronger than expected (4.1% in June versus 1.7% expected). The CAD rallied more than 0.30% on the news, with USDCAD dropping as far as 1.3113, first support for the pair.

Mid-week, the loonie couldn't hold onto the gains that saw the USDCAD trading to a new weekly low of 1.3113. USD broad strength following the upbeat economic message from FED Chairman Jerome Powell to the Senate weighted on the loonie despite a very strong Canadian Manufacturing sales number of +1.4% (versus +0.4 % expected). USDCAD broke temporarily above the 1.32 resistance level, reaching a new weekly high of 1.3217.

To close out the week, positive Retail Sales and inflationary numbers gave an additional boost to the loonie. Retail Sales for May posted 2.0% vs. estimates of 1.1% and CPI year over year for June printed at 2.5% vs. previous of 2.2%. The robust economic fundamentals have given market participants room to factor in a more probable cause for the Bank of Canada to raise interest rate hikes at the end of the year.

It was a very quiet start to the last week for the Eurozone, with little European economic data to talk of and only World Cup celebrations along the Champs Elyse interesting to watch.

With direction mainly driven from foreign markets, we saw the euro close mid-week sessions 0.40% down versus the USD, and continue to break through key support levels, around the 1.1645 mark. These declines have come mostly as a result of a strengthening US dollar whereby Fed Chairman Jerome Powell delivered an upbeat assessment of the US economy, signaling that gradual rate rises are the best way “for now” given the “encouraging” inflation numbers. As a result, the US dollar rallied following a spike in US 2YR yields and EUR/USD dropped to a new weekly low.

Despite the single European currency weakening against the US Dollar, the flip side of the coin has seen the Euro touch 19 week highs against the pound as the Brexit woes continue. Next week promises to be more exciting with a raft of manufacturing PMIs and an ECB press conference. Stay tuned!

Last week was a tough week for the sterling, amid Brexit concerns which continue to dominate headlines. The week saw Theresa May survive two votes on her Customs Bill after conceding to pro-Brexit demands to change its wording. Remainers and pro-EU Tories lashed out at the Prime Minister accusing her of ‘caving – in’ to demands and Defence Procurement minister Guto Bebb quit last night in order to vote against the government. The key bone of contention was an amendment which prevents the UK collecting taxes on behalf of the EU unless the favour is reciprocated.

Mid-week, disappointing retail sales figures saw it the GBP dip, losing nearly 2.5% of its value against the USD whilst it has also finally broken out of its narrow trading range against the Euro. World Cup spending on alcohol and BBQ food couldn’t offset the drop in spending elsewhere and once again the headline figures has contracted for a third time this year as retailers flocked away from traditional storefronts with the good weather tempting people outside. Any gains that sterling made against the Euro in March and April have slowly eroded with GBP/EUR hitting 19 week lows. Similarly GBP/USD has hit fresh 10 month lows.

What does this mean moving forward, and is there any reprieve for the pound? Well, with a Bank of England interest rate decision just around the corner (August 2nd) the market was pricing in around an 83% chance of a hike at the start of the week but this could be thrown up in the air. The only hope for sterling bulls and Bank of England interest rate hawks is that private consumption only plays a small part in the UK’s GDP figures and it has always been a volatile figure to forecast.

The Australian Dollar began last week relative calm, opening around the 0.7413 mark. This is the fourth consecutive week where the Aussie has exited the weekend around this mark, unable to progress amid the broader narrative of trade tensions that are dominating the headlines.

With US Dollar strength driving market momentum, mid-week saw the Aussie forced lower off the back Federal Reserve Chair Powell decidedly hawkish address in his semi-annual testimony to the Senate. Of note was Chair Powell’s stated intention to continue with the gradual rate rise path “for now”. Against the backdrop of geopolitical tensions and trade disputes the market appreciated the positive take on the health of the US economy and immediately responded.

Towards the end of the week, the big headline was of course the 50.9k jobs added to the Australian economy. The news soundly beat all analyst expectations and saw the Australia Dollar appreciate significantly to 0.7441 mark. However, from there it was a week to forget with the industrial metal prices reflecting slowing growth concerns in China. Copper fell 1.5%, taking its declines since the start of June to 17%. Zinc, Nickel and Lead prices also slid in the decidedly bearish market. Compounding, the commodity concerns was the softness of the Chinese Yuan which hit a new low for the year. Overall, the Aussie fell over 1.5% from its week high at 0.7441.

Thankfully, the Aussie enjoyed a quiet domestic calendar to close out the week; a welcome environment in light of recent trading. Off-shore, risk-events are fairly limited with attention mainly focused on the G20 summit, which kicked off on Friday in Buenos Aires.

The New Zealand Dollar began last week on a steady course, opening at 0.6768 against the US Dollar. The first release of the week saw the NZ services sector for June softening to 52.8, underperforming the market's expectations. However, it still showed a positive measure of expansion and has not shown a level of contraction since 2010.

Tuesday saw the release of the latest NZ inflation figures and there was little reaction to the quarterly release, which came in at 0.4%, just below forecast, while the annualised inflation reading dipped to 1.5%.

Broad US Dollar strength and another weak GlobalDairyTrade auction pulled the New Zealand Dollar lower mid-week, only amplified by Federal Reserve Chairman Jerome Powell testifying on the Semiannual Monetary Policy report before the House Financial Services Committee in Washington. Powell was buoyant in his remarks for the current state of the United States economy and is on track for gradual interest rate rises with the expectation still of two further hikes this year by the Federal Reserve.

A sharp spike higher though for the Kiwi occurred Thursday, as President Donald Trump in an interview with CNBC said that a stronger dollar “puts us at a disadvantage” and is currently unhappy with the current Federal Reserve monetary policy tightening. The Kiwi rebounded to 0.6760 following Trumps comments before drifting lower, to 0.6745 mark. Markets will look towards G20 meetings in Buenos Aires this weekend for further stance on simmering trade tensions.