*Overnight data + China spark USD rally
*SEK outperforms after hawkish bias
*CAD outlook remains misty
Overnight data spurs risk rally...
A widely anticipated ISM non-manufacturing survey released late last night beat expectations sparking a broad risk rally across equities and USD - rebuffing fears the US was on the verge of a joining a global slowdown. Printing 56.4 vs 54.0 consensus, it was a sigh of relief for those who were predisposed by an earlier-in-the-week's contractionary manufacturing print of 49.1.
Coupled with developments across the US-China trade complex where:
- China's Vice Premier Liu He will hold talks with the US in early October in Washington;
- A targeted RRR cut, effectively a liquidity injection into markets, is planned for September; and
- China appear reluctant to go down the path of CNY depreciation
It appears
USDJPY holds ammunition to make a meaningful break of 107.0, June and July's lows, having tried last night but failing to close above. Furthermore, with little in the way of negative headlines, equities will be set to open higher again today, S&P500 futures having gained +1.16% overnight.
As a final note, a rate cut of 25bps at the next Fed meeting held on September 19th is now heavily favoured, pricing in at an 83% probability. Markets will be closely tracking tonight's Non-Farm Payrolls number at 10.30pm AEST, and Powell Fedspeak at 2.30am AEST, for any changes to Sep-19 expectations.
ISM n-mfg m/m beat, source: Thomson Reuters
Riksbank hawkishness leads SEK...
Europe open last night saw The Riksbank release rate guidance with a greater than expected hawkish tone, driving SEK outperformance against the USD (+0.47%) and EUR (+0.44%).
The Riksbank, one of the most hawkish G10 Central Banks around, reiterated it's tightening path maintaining "interest rates are expected to be raised towards [Dec] or [the start of next year]". It comes as a surprise to those who were open to The Riksbank remaining neutral as The ECB prepares for a rate cut this month.
Look to bearish sentiment in USDSEK, EURSEK as Central Bank policy between The Riksbank and G10 majors continues on a divergent pathway.
Governor Schembri holds similar tone to BoC...
Yesterday, as I mentioned The BoC revealed little about what it wanted to do next, Deputy Governor Schembri has clearly followed suit. Some key things published in his Economic Progress Report noted "Canada is operating close to full potential" but should be wary of "the implications of financial vulnerabilities". A neutral outlook should hold USDCAD shorts for the time being.
Back