Talking Points:

BOE Policy Announcement Likely a Non-Event for the British Pound
US Dollar Looking to Fed Commentary as Markets’ Attitude Evolves
Australian Dollar Drops on June Jobs Data, Chinese Trade Figures

A monetary policy announcement from the Bank of England headlines the economic calendar in European hours. Mark Carney and company are widely expected to keep things unchanged yet again. This typically means that a statement illuminating the MPC’s decision will not be released. That will leave traders to wait for the release of minutes from the sit-down on July 23 to get a read on what transpired, making the announcement itself a likely non-event for the British Pound.

Later in the day, “Fed-speak” is in the spotlight as the President of the US central bank’s Kansas City branch Esther George and its Vice Chair Stanley Fischer take to the wires. Yesterday’s release of minutes from June’s FOMC meeting produced a curious response: while policymakers offered an upbeat view on growth and even suggested that a larger-than-usual $15 billion final “taper” would end the QE3 program in October, front-end bond yields and the US Dollar declined. A wealth of theories explaining this apparent disconnect dutifully emerged but figuring out the logic behind the markets’ newfound interpretation of Fed communication will require consistency of reaction. With that in mind, it ought to be interesting to watch how markets treat whatever rhetoric emerges.

The Australian Dollar underperformed in otherwise quiet overnight trade, sliding as much as 0.2 percent on average against its leading counterparts. The currency was only momentarily buoyed by a better-than-expected headline figure in June’s Employment report, with traders quickly picking up on sub-surface weakness clues and sending the exchange rate downward. The drop tracked a decline in Australia’s benchmark 10-year bond yield, suggesting deterioration in RBA policy expectations as the catalyst.

A disappointing set of Chinese Trade Balance figures compounded Aussie selling pressure. The trade surplus unexpectedly narrowed to $31.56 billion in June while exports grew at a year-on-year rate of 7.2 percent, a reading far lower than the 10.4 percent outcome projected by economists ahead of the release. China is Australia’s top trading partner and soft performance there bodes ill for the latter country’s pivotal mining sector, ultimately bearing down on overall growth. We are short AUD/USD.

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