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US PPI and CPI both miss the mark, UK GDP accelerates

By OFX

The US Dollar Index (DXY) appreciated 0.33% to start the new working week, the catalyst for the move upwards was stronger than expected US wage growth as well as fresh new threats from President Trump on Chinese imports. Market sentiment decidedly shifted towards safe-haven currencies which saw the Greenback strengthen further than it already has this year.

The US Non-Farm Payroll report released on the previous Friday surprised markets adding 201,000 new jobs in August, beating expectations of 191,000. Also, average hourly earnings rose 0.4% month-on-month and by 2.9% year-on-year, which was the highest wage growth print in almost a decade supporting the Fed’s assertion that the tight labor market would lead to higher wages and price inflation. The implications were not lost on the market which saw US treasury yields move sharply higher as well as boosting expectations of the Fed tightening monetary policy further. The Dollar also benefited from the sentiment, rising higher on the news against most of its counterparts. New threats from the President also boosted demand for the Greenback despite not announcing the $200bn tariffs on Chinese imports. President Trump did say that it could happen “very soon” but so far, the duties have not yet been implemented. It was another ratchet up of the rhetoric that saw the USD appreciate further with his statement suggesting he was considering putting higher tariffs on all Chinese goods, leading to negative sentiment on market movements. The news hit riskier assets the most and saw steep depreciation for many China aligned currencies.

On the data front, some disappointing data releases put downward pressure on the USD, with PPI and CPI both missing the mark. CPI data came in at 0.2%, missing expectations of 0.3% and unemployment claims also printed at 204K versus expectations of 210K. The US Dollar Index (DXY) dropped touching the 94.43 mark. Core retail sales also printed worse than expected at 0.3%; the forecast was for 0.5%. The only positive side on the economic calendar was from UoM Consumer Sentiment which printed better than expected at 100.8 versus forecast of 96.7.

The Canadian Dollar started the week softer after employment data fell short of broader expectations. Surprisingly the economy lost more than 50,000 jobs throughout August, the most significant monthly decline since January and well outside analyst expectations for labor market expansion, while an uptick in Full-time employment helped pacify investors and ensures another rate hike is still on the table.

The Canadian dollar still remains vulnerable to trade talk and risk appetite trends. Verification President Trump and the US will look to impose a further $267 billion tariffs on Chinese Imports only escalates recent uncertainty following the break down in trade talks at the end of last week. There is an increasing fear Trump and the US will look to implement Tariffs on Canadian auto-makers, a move that could have significant consequences for the broader Canadian economy.

Elsewhere, oil prices are also putting pressure on the CAD , as the IEA reported global oil supplies hitting a record 100million bpd for the month of August.

The euro edged higher through trade on Monday, creeping back through 1.16 to touch intraday highs at 1.1612. The market found confidence in reports that negotiations were moving forward, with Trump and the US Trade Representative Office seeking to commence congressional consultations in a bid to fast track preliminary deals, ahead of a November follow up.

While there are broader concerns Trump could renege on promises to waylay tariffs on EU automakers, a promise from EU negotiators to import more LNG and soybeans seems to have placated the President for the time being and a move to securing longer-term outcomes appears plausible moving into the end of the year.

To close out the week, the EUR/USD saw fresh two-week highs as the pair touched 1.17 in early North American trading before fading. The ECB failed to surprise markets by deciding to keep interest rates on hold, with ECB President Mario Draghi reiterating that underlying economic strength in the Eurozone was supportive of the bank's confidence in the inflation rate returning to their target level in the near term. In outlining that the bank would remain accommodative with its monetary policy stance, Draghi didn’t adopt a hawkish tone as some were expecting, however the EUR still rallied against the USD throughout the press conference as the greenback suffered selling pressures on the back of the weak CPI read.

The pound began last week on a positive note, rising against the dollar on Monday after the European Union’s top negotiator Michel Barnier said an agreement for Britain to leave the economic bloc might be reached in the coming weeks. Following the news the GBP/USD pair jumped above the 1.3000 level mid-European, reaching a 5-week high of 1.3051.

On the local data front, Gross Domestic Product (GDP) accelerated in the month of July, courtesy of a sharp rise in motor trading, lifting output to its quickest pace in nearly a year. GDP expanded by 0.3% in the month, above the MNI median forecast of a 0.2% rise, this following a 0.1% rise in June. That took growth in the three months to July to 0.6%. Industrial Production also rose by less-than-expected in July, up by just 0.1% mom, while manufacturing output contracted 0.2%.

Closing out the week, the pound peaked to its highest level in six weeks against the greenback. The GBP/USD pair reached a high of 1.3121 on the back of U.S. dollar weakness and the Bank of England keeping interest rates on hold at 0.75%, highlighted greater financial market concerns about Brexit, a month after raising borrowing costs for only the second time in more than a decade.

The Australian Dollar saw limited movements to start last week, holding steady at support levels of 71 US Cents. The opening sessions saw the AUD/USD treading water on renewed trade concerns between the United States and China, and was reasonably muted as traders ignored the release of China’s CPI print for the month of August which came in unexpectantly higher at an annualised rate of 2.3%.

Elsewhere on the data front, last week saw the Westpac Consumer Sentiment report print at a disappointing -3% result, highlighting the falling confidence in market conditions that is reverberating around the globe. On the flip side of the coin, the Aussie found its feet on with a positive jobs report. The highlight of the report was the Australian economy adding 44,000 jobs against an expected 18,000. The Australian Dollar jumped significantly on the news to test the key 0.72 level but failed to break through. Ultimately however, it did spur on a positive advance for the Aussie and helped it holds its gains.

In what is a quiet week on the domestic data front for the Kiwi, the domestic unit continued to take its cues from offshore datasets and developments in global risk sentiment.

The Kiwi seemingly suffered at the hands of the greenback for most of the week, as strong second tier data out of the US saw yields tick up and equities rise. Widening interest rate differentials and the threat of potential escalations in the Trump-China trade war will continue to weigh on the NZD in the near term.