Dollar Beginning Autumn FX Trading Season on a Rising Note

September 4, 2018

With trade war fears still on the front burner, the dollar’s first post-Labor Day movement has been mostly upward especially against emerging market currencies. The dollar has climbed 2.1% against the South African rand, buoyed by confirmation of South Africa’s first recession since 2009. The greenback is also up 1.1% against the Mexican peso, 0.7% versus the Turkish lira, 0.5% vis-a-vis the Russian ruble and 0.3% against the Chinese yuan.

Currency market trading in the calendar year naturally divides into three seasons: winter-early spring and autumn surround the summer period between the U.S. Memorial Day and Labor Day holidays. Historically, the dollar has often performed more weakly in the autumn than the other two intervals, but it is off to a good start this autumn.

Against key currencies of other developed economies, the dollar today has risen by 0.8% against the New Zealand dollar, 0.5% vis-a-vis the euro, loonie and Swedish krona, 0.4% relative to sterling and the Swiss franc, and 0.2% against the yen and Australian dollar.

The winds of protectionism also weighed on European share prices, which so far show declines of 1.7% in Greece, 1.3% in France, 1.1% in Germany, 0.8% in Switzerland, and 0.4% in Great Britain. Stock markets in the Pacific Rim, in contrast, rose 1.1% in China, 1.0% in Hong Kong, 0.5% in Taiwan, and 0.4% in South Korea and New Zealand. Japan’s Nikkei only dipped 0.1%, and Australia’s market lost 0.3%.

West Texas Intermediate crude oil jumped 1.9% to $71.14 per barrel. Metal prices like copper (-2.6%) and gold (-0.8%) fell, however.

Ten-year U.S., German, British and Japanese sovereign debt yields are each unchanged thus far.

The Reserve Bank of Australia once again left its Official Cash Rate unchanged at 1.50%. The prolonged interval since the last OCR change — a 25-basis point cut in August 2016 — constitutes a record. In spite of the unchanged central bank interest rate, several Australian banks are expected to follow Westpac’s recent lead and lift mortgage interest rates. A statement released by the RBA Board projects a lower jobless rate and an eventual rise of inflation towards target. Officials also observe a flat trade-weighted exchange rate despite the A-dollar’s recent slippage against its U.S. counterpart.

South African real GDP contracted 0.7% at a seasonally adjusted annual rate (SAAR) in the second quarter. This was the second quarter-on-quarter contraction following a drop of 2.6% SAAR in 1Q. That hadn’t happened since 2015.

Producer prices in the euro area climbed 0.4% in July. Energy leaped 1.1%, while other producer prices collectively edged up just 0.1%. On-year PPI inflation of 4.0% was up from 3.6% in June and 1.9% in May.

Swiss consumer prices were flat on month and posted the same 1.2% year-on-year advance in August as in July. Core inflation remained at a mere 0.5%.

Despite dipping 0.1% on month, Romanian producer price inflation in July was elevated at 6.0%.

Sweden’s current account surplus last quarter of SEK 10.0 billion was significantly smaller than SEK 17.6 billion in 1Q18 or SEK 35.6 billion recorded in the second quarter of 2017. In fact, the latest quarterly surplus was the smallest since at least early 2015.

Australia’s current account deficit of A$ 13.472 billion last quarter was greater than those in the previous quarter (A$ 11.678 billion) and the second quarter of 2017 (A$9.664 billion).

Japan’s monetary base, which is the aggregate over which the central bank exerts most direct control, continues to exhibit declining on-year growth, which fell to 6.9% in August from 7.6% in July, 8.6% in the first half of 2018, 17% in 2017, and 25% in 2016.

BRC reported that British same-store sales in August were 0.2% higher than a year earlier. That tiny on-year rise compares to 0.5% in July, 1.1% in June, and 1.2% in May.

A 0.2 percentage point drop in Ireland’s jobless rate to 5.6% in August was the first change since a similar-sized decline in February.

The British construction purchasing managers index (PMI) fell from a 14-month high of 55.8 in July to a 3-month low of 52.9 in August.

Vietnam’s manufacturing PMI declined 1.2 points to a 4-month low of 53.7 in August.

Non-oil PMI readings for Egypt and Saudi Arabia rose to respective 9- and 8-month highs of 50.5 and 55.1. The non-oil U.A.E. PMI fell to a 5-month low of 55.0, however.

President Trump’s lawyer, former NYC Mayor Giuliani, said it is now too late for the Mueller investigation to interview the president.

Still due today: U.S. construction spending, the IBD/TIPP U.S. optimism index, U.S. and Canadian PMI survey results for manufacturing, and the latest Chilean monetary policy decision.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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