The Australian and New Zealand Dollars followed Asian stocks higher overnight as investors digested Syria-linked jitters and awaited new fodder for speculation.

Talking Points

Aussie, NZ Dollars Rise with Asian Stocks Syria-Linked Risk Aversion Recedes
Euro at Risk if Soft German CPI Data Boosts Cast for More ECB Stimulus
US Dollar to View Revised US GDP Print in Terms of Fed “Taper” Outlook

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The Australian and New Zealand Dollar outperformed in overnight trade, rising as much as 0.4 and 0.5 percent respectively against their leading counterparts. The move appeared to reflect improved risk appetite on Asian stock exchanges. The MSCI Asia Pacific regional benchmark equity index rose 0.5 percent. The improvement in sentiment is probably corrective after three days of aggressive selling across much of the risky asset spectrum on the back of Syria-related jitters. Some moderation after the initial knee-jerk response is reasonable as traders digest the limited stock of information already out there and wait for additional news-flow to drive renewed speculation.

The preliminary set of Augusts’ German Consumer Price Index figures headlines the economic calendar in European hours. Expectations call for the headline year-on-year inflation rate to decline to 1.7 percent, the lowest in three months. A soft print may be seen as amplifying the case for additional ECB stimulus and weigh on the Euro. Separately, the August Unemployment report is due to show the number of people out of work declined by 5,000 compared with the prior month. A print in line with or close to the consensus forecast is unlikely to produce a strong response from financial markets. Significant deviations that are perceived to carry wider implications for regional growth and thereby for monetary policy have scope to generate short-term volatility however.

Later in the day, the spotlight shifts to the US economic calendar. A revised second-quarter US GDP reading is expected to show the economy grew at an annualized pace of 2.2 percent in the three months through June, an upgrade from the initial estimate of 1.7 percent. The result is likely to be interpreted in terms of its implications for the Fed’s move to “taper” QE asset purchases. As it stands, the markets have probably come to terms with the likelihood of a nominal cutback at September’s FOMC, with the focus shifting to what is likely to happen thereafter. Indeed, doing nothing at that stage could be seen as a credibility problem for the Fed after all the rhetoric expounded by central bank officials to put expectations where they are presently. With that in mind, a GDP print on the strong side of the median forecast stands to boost the US Dollar while a soft one will probably produce the opposite result.

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