Talking Points:

Aussie Dollar Gains Alongside China’s Shanghai Composite in Asia Trade
US Dollar May Rise After Overnight Dip as CPI Boosts Fed Rate Hike Bets
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The Australian Dollar outperformed in overnight trade in a move tracking a surge in the Shanghai Composite stock index, pointing to firming risk appetite as the likely catalyst. China’s equity benchmark rebounded after two days of aggressive losses as traders continued to game the probability of a Federal Reserve interest rate hike later this week.

The US Dollar corrected lower after issuing the largest daily gain in 2 weeks yesterday as front-end Treasury yields jumped ahead of the sit-down in an apparent recalibration of market expectations reflecting a real chance that the onset of tightening is indeed at hand. Still, Fed Funds futures are pricing in a mere 28 percent likelihood of a rate hike. Economists are closer to an even split on the issue, with 48 percent of respondents in a Bloomberg survey favoring a 25 bps increase.

Looking ahead, Augusts’ US CPI report takes top billing. The core year-on-year inflation rate is expected to rise to 1.9 percent, the highest in 13 months. A strong outcome may bolster the chance for a rate increase in the minds of investors, boosting the US Dollar but weighing on risk appetite. The sentiment-linked currencies of the so-called “commodity dollar bloc” are likely to suffer most in such a scenario, while the anti-risk Japanese Yen stands to gain. The Euro may emerge as a beneficiary of risk aversion once again, although strength against the greenback seems less likely if Fed rate hike bets are the source of markets’ souring mood. Needless to say, a soft CPI print stands to deliver the opposite dynamic.

UK Jobless Claims figures are likewise on tap, with forecasts calling for another 5k decline. Leading survey data has sent ominous clues about labor conditions in August however, opening the door for a downside surprise. Such a result may weigh on the British Pound as traders scale back imminent BOE interest rate hike bets.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

22:45

NZD

Current Account GDP Ratio YTD (2Q)

-3.5%

-3.7%

-3.4%

22:45

NZD

BoP Current Account Balance (2Q)

-1.216B

-1.500B

0.821B

00:30

AUD

Westpac Leading Index (MoM) (AUG)

-0.3

–

0.1%

05:00

JPY

Bank of Japan’s Monthly Economic Report

–

06:00

JPY

Machine Tool Orders (YoY) (AUG F)

-16.5%

–

-16.5%

European Session

GMT

CCY

EVENT

EXP

IMPACT