Talking Points

Aussie, NZ Dollars Fall with Asian Stocks Amid US Policy Uncertainty
Euro May Rise After German IFO Data on Waning ECB Easing Outlook
US Dollar Looks to Consumer Confidence Print to Drive “Taper” Bets

The Australian and New Zealand Dollars declined in overnight trade as Asian stocks followed Wall Street lower, pulling the sentiment-geared currencies along for the ride. The MSCI Asia Pacific regional benchmark equity index fell 0.9 percent. The news-wires chalked up the move to uncertainty over US economic policy.

On the fiscal side, debate is heating up over an increase of the federal spending limit (the so-called “debt ceiling”) once again. Eleventh-hour wrangling over the issue prompted ratings agency Standard & Poor’s to strip the US of its AAA credit rating while citing political dysfunction in 2011. Investors have since taken a cautious posture when similar arguments arise, worrying that constant brinksmanship may soon end in tears.

Meanwhile on the monetary policy side, speculation about the timing of a move to “taper” QE3 asset purchases has been reset by last week’s unexpected FOMC outcome. Conflicting messages from a flurry of Fed policymakers speaking over the past 24 hours did little to demystify the central bank’s intentions. Reasonably enough, investors’ response to the uncertain landscape looks to have been a pullback on exposure to risky assets until further clarity emerges.

Looking ahead, Germany’s IFO survey of business confidence headlines the economic calendar in European hours. Expectations call for the headline Business Climate gauge to rise for a fifth consecutive month in September, marking the highest level since April 2012. Signs of firming sentiment in the Eurozone’s largest economy may weigh against expectations for additional ECB stimulus, boosting the Euro.

From there, the spotlight turns back to the US docket, where consensus forecasts are calling for the Consumer Confidence gauge to edge lower in September. Softer economic data that argues against a move to reduce QE asset purchases in the near term stands to weigh on the US Dollar. Needless to say, an upside surprise is likely to produce the opposite result.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

5:00

JPY

Supermarket Sales (YoY) (AUG)

0.1%

–

-0.5%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:00

EUR

German IFO – Business Climate (SEP)

108.0

107.5

Medium

8:00

EUR

German IFO – Current Assessment (SEP)

112.5

112.0

Medium

8:00

EUR

German IFO – Expectations (SEP)

104.0

103.3

Medium

8:30

GBP

BBA Loans for House Purchase (AUG)

38950

37200

Low

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3361

1.3435

1.3464

1.3509

1.3538

1.3583

1.3657

GBPUSD

1.5878

1.5957

1.6000

1.6036

1.6079

1.6115

1.6194

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Source: Daily fx