Overall, the dollar remains the strongest this week, followed by the Swiss franc and the yen. Risk aversion is supporting these currencies amid expectations of another jumbo rate hike by the Fed next week. Commodity currencies are the worst performers with Kiwi being sneaky. Euro and sterling are mixed for now with the euro having a slight advantage but that could easily reverse.
Technically, there was a big move yesterday as Gold dived through key cluster support around 1680 (which coincides with a 38.0% retracement from 1046.27 to 2074.84). A long term double top pattern should form with the tops at 2074.84 and 2070.06. A weekly close below 1680 will confirm this bearish case. The stage would then be set for a deeper decline to 61.8% retracement at 1439.18 in the fourth quarter. Downside momentum could increase if US 10-year yield could decisively break 3.483 high to resume medium-term uptrend.
In Asia, the Nikkei is down -1.07% at the time of writing. The Hong Kong HSI is down -0.52%. China Shanghai SSE is down -1.38%. The Singapore Strait Times is down -0.06%. The 10-year Japanese JGB yield is up 0.0028 to 0.260. Overnight, the DOW fell -0.56%. The S&P 500 fell -1.13%. NASDAQ lost -1.43%. The 10-year yield rose 0.047 to 3.459.
RBA Lowe: Interest rate of 2.35% is still too low
RBA Governor Philip Lowe told the House Standing Committee on Economic Affairs that the 2.35% interest rate was “still too low”. He added that, in the longer term, policy rates should “at least meet the midpoint of the inflation target,” which is 2.5%, if not slightly higher. Also, an average interest rate of around 3% was “possible” and we will circle a number between 2.5 and 3.5.”
Lowe also warned that the longer inflation stays above 3%, “the harder it will be” for Australians. If that happens, “then we have higher interest rates and a recession, which is harmful. “So we have two difficult positions right now: some pain now and hopefully real wages will pick up again next year against the risk of doing nothing, just sitting on our hands and keeping inflation higher.”
NZ BusinessNZ production rose to 54.9, improving the tone around underlying growth
The New Zealand BusinessNZ Performance of Manufacturing Index edged up to 54.9 from 53.5 in August. Production increased from 50.8 to 54.6. Employment rose to 53.6 from 52.9. Order intake rose to 59.2 from 50.8. Finished inventories increased to 50.8 from 48.7. Deliveries rose to 53.7 from 50.1.
Craig Ebert, senior economist at BNZ, said: “That second quarter manufacturing output was generally resilient and not slumped was reflected in the April, May and June PMI readings. And in July and August, the PMI has moved to suggest an improving tone in terms of underlying growth.”
Data out of China hits but USD/CNH stays above 7
Industrial production in China rose 4.2% yoy in August, beating expectations of 4.0% yoy. Retail sales rose 5.4% year over year, beating expectations of 3.2% year over year. This is the fastest pace since January/February this year. Fixed investment rose 5.8% year-on-year, beating expectations of 5.6%.
“The economy weathered several unexpected headwinds in August and, with the help of additional supportive measures, showed a positive recovery,” the NBS said in a statement. “Production needs are stable and rising, employment and prices are stable, most indices are better than last month.”
The better than expected data offered little support for the falling yuan, with USD/CNH breaking 7 psychological resistance levels this week. There’s no sign of topping from the pair just yet. USD/CNH is on course for 61.8% exp 6.3057-6.8372 from 6.7159 at 7.0444. A firm break there will set the stage for a pandemic high at 7.1961.
UK retail sales in August fell -1.6% mom vs expectations of -0.6% mom. Non-fuel sales declined -1.6% MoM, below expectations of -0.7% MoM.
Looking ahead, Italy’s trade balance and euro-zone CPI final will be released in the European session. Canada will release wholesale sales later in the day. The US will release U of Michigan consumer sentiment.
Daily USD/CAD Outlook
Daily Pivots: (S1) 1.3175; (P) 1.3208; (R1) 1.3261; More…
USD/CAD break of 1.3222 resistance confirms resumption of uptrend from 1.2005. The intraday bias is back on the upside. The next target is a 100% forecast from 1.2005 to 1.2947 from 1.2401 to 1.3343. On the downside, minor support below 1.3238 will initially neutralize intraday bias. But pullback should be contained well above 1.2952 support to set another rally.
Broadly downtrend from 1.4667 (2020 high) should be completed at 1.2005 after defending 1.2061 long-term cluster support. A rise from there should target a 61.8% retracement from 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the preferred case for now as long as 1.2726 support holds.
Update of economic indicators
|Greenwich Mean Time||Ccy||events||Indeed||forecast||previous||Revised|
|10:30 p.m||CHF||Business NZ PMI Aug||54.9||52.7|
|02:00||CNY||Retail Sales Y/Y Aug||5.40%||3.20%||2.70%|
|02:00||CNY||Industrial production Y/Y Aug||4.20%||4.00%||3.80%|
|02:00||CNY||Investments in Fixed Assets (YTD) Y/Y Aug||5.80%||5.60%||5.70%|
|06:00||British pound||Retail M/M Aug||-1.60%||-0.60%||0.30%|
|06:00||British pound||Retail Sales Y/Y Aug||-5.40%||-4.20%||-3.40%||-3.20%|
|06:00||British pound||Retail sales ex-fuel M/M Aug||-1.60%||-0.70%||0.40%|
|06:00||British pound||Retail sales ex-fuel Y/Y Aug||-5.00%||-3.40%||-3.00%|
|08:00||EUR||Italy Trade balance (EUR) 07.07||-1.50B||-2.17B|
|09:00||EUR||Eurozone CPI Y/Y Aug F||9.10%||9.10%|
|09:00||EUR||Eurozone CPI Core Y/Y Aug F||4.30%||4.30%|
|12:30 p.m||CAD||Wholesale M/M Jul||0.30%||0.10%|
|14:00||USD||Michigan Consumer Sentiment Index September P||59.8||58.2|