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FOMC Minutes Released this Week ahead of The Jackson Hole Symposium.

By OFX

The US Dollar fell across the board on Friday as commodity currencies lead upside movers. The greenback closed the day’s worst performer following an uptick in optimism surrounding US-China trade tensions ahead of talks later this week. Rumors US and Chinese delegates are mapping out plans to end trade hostilities helped fuel demand for commodity-led currencies like the CAD, AUD and NZD while fueling the rebound in emerging markets.

Despite the Dollar Index falling six-tenths of a percent through trade on Friday and reversing some of the weeks earlier gains the shift in trade-based sentiment is merely a short-term correction for now. A consolidated solution to recent trade hostilities needs to be found before a significant change in underlying momentum undoes broad-based US strength.

The Federal Reserve won’t be escaping the limelight with the release of the latest FOMC minutes as well as Jerome Powell speaking at the Jackson Hole Symposium (Powell is set to talk about the role of monetary policy in a changing economy). The market will be looking for further signals in the Fed minutes towards two more rate hikes this year; currently, September and December but these are primarily expected. More crucially, therefore, will be further information as to how much more will the balance sheet be shrunk.

The Loonie was a bit of a mixed bag last week as weakness in commodity prices and risk sentiment more broadly continued to weigh on the commodity-linked currency. Friday’s July inflation read ensured any weakness in the loonie going forward would be short-lived as the Canadian dollar surged 0.8% against the greenback strengthening to touch intraday high of 1.3057. The 3% read represents a 7-year high and came in significantly above market expectations of 2.5% and increases the likelihood the Bank of Canada will raise benchmark interest rates again this year, causing the CAD to appreciate.

This week sees Canadian Retail sales for June released on Wednesday as well as commentary from BoC Governor Poloz speaking on Sunday. Considering the stronger than expected CPI number on Friday, markets will be watching the analysis closely for any indication of timings of future interest rate decisions.

On the technical front, the first support is now at 1.3029, and on the upside, resistances are aligned at 1.3135 and 1.3190 respectively as risk sentiment out of emerging markets and commodity prices expected to continue to drive direction.

The Euro enjoyed a week of mixed fortunes with an out and out resolution to the Turkey issue still in the works. Nevertheless, the euro did manage to post a small weekly gain despite bottoming out at 1.13 during the week. Opening this morning at 1.1428, the Euro looks to have reversed a three-week losing streak although demand for the Euro remains subdued.

The appreciation of the euro looks to have been driven by off-shore forces rather than latent demand for the Euro with the USD falling across the board. The catalyst, in this case, is further trade talks between the US and China which saw risk-sentiment turn positive. Rumors suggest that they are planning a roadmap to put an end to the dispute by November, a decidedly positive outcome according to market pundits. Turkey, however, continues to look problematic for the Europeans although the rhetoric around a contagion effect has been dialed lower. Markets have mostly come to accept that any spill-over effects will be limited in scope.

There were some further encouraging signs for the Euro, however, that did aid in its recovery during the week. Q2 GDP came in better than expected at 0.4% with German GDP, in particular, posting a 0.5% growth. Inflation, however, continues to be a problem with the figure dropping by 0.3% for the union. Overall the releases had minimal effect on the valuation of the euro but painted a picture for investors. Moving forward into the new week, attentions now turn to some minor macroeconomic releases from Germany and developing headlines in the US.

This upcoming week and last week couldn’t be more contrasting for UK data releases. While last week saw the release of a raft of data in the form of retail sales, inflation and wage growth, this week there is no data whatsoever. Indeed, that is it regarding major UK data reports, with nothing else set to excite the market until September. This is important because last week the data was quite confident from the UK, with retail sales rising (thank you Harry Kane) and unemployment falling to 43-year lows. However, the reaction from the pound was very muted suggesting that all eyes are elsewhere, most notably the risk of a ‘no deal’ Brexit.

Brexit headlines could return this week as UK-EU negotiations start once again while Parliament returns from its summer recess the week after the bank holiday. In the meantime, expect the pound to remain under pressure unless there is a pullback in the USD recovery.

After spending the week below the 73c handle and touching an eighteen-month low of 0.7214 against the U.S Dollar, the aussie staged a recovery during the North American session and managed to close the week at 0.7314. The move was mostly linked to a broad-based USD sell-off and a rebound in base metals. Copper, iron ore and oil all rose as well as seeing a pull-back in the U.S Dollar index; the DXY closed the session at 96.13, 0.48% lower.

On another note, the RBA Governor Philip Lowe spoke before the House of Representatives delivering his half-yearly testimony. It seems both he and the RBA remained upbeat on economic growth prospects and have indicated that the board was unlikely to raise rates for a while but ruled out a rate cut. From a monetary policy perspective, the testimony offers little concerning new information and continues to flag a stable outlook for the RBA for some time. On the exchange rate, Governor Lowe noted that a lower AUD would be "helpful."

There were no economic data releases locally today; however, the RBA is due to release its monthly minutes. On a technical front, we have support sitting at 0.7270 and 0.7230, with resistance up at 0.7340 and 0.7380.

The New Zealand Dollar finished off the week higher and gained nearly 1% from its weekly open as commodity currencies rallied on Friday as risk on trades returned. Opening at 0.6580, the Kiwi was in a buoyant mood following the release of an increase in PPI Input & Output for the 2nd quarter of the year. Inputs rose 1% versus the previous quarter reading of 0.6%, mainly due to the increase in crude oil and milk powder.

Intraday moves tested resistance at 66 US cents before pushing through this barrier in the offshore session as a bout of US dollar weakness took hold in the markets. Eventual highs were seen at the close at 0.6630 as trade negotiations re-surfaced between the United States and China, giving some hope to emerging markets.

On the economic docket domestically, this week is the release of Retail Sales and Trade Balance figures as the Kiwi opens higher this morning at 0.6625 against the US Dollar.