Risk appetite is holding steady with a positive outlook as we await a flurry of US economic data. Despite strong recent numbers from the US, which have put pressure on the idea of aggressive rate cuts by the Federal Reserve starting in September, the mood remains upbeat. This positivity is partly due to China’s industrial profits and reduced fears of a severe US economic downturn, which is challenging the US Dollar.
At the start of the week, the US Dollar saw gains, driven by strong figures in US Durable Goods Orders and the Dallas Fed Manufacturing Index. Additionally, risk-averse news and the consolidation of previous trends, coupled with UK holidays, supported the Greenback. This rebound has put pressure on the EURUSD and GBPUSD while rising yields and uncertainty about the Bank of Japan’s rate hikes have boosted the USDJPY.
The AUDUSD and NZDUSD remain positive but are lacking momentum, while the USDCAD is under pressure due to rising oil prices and Canadian political uncertainty. Crude oil has surged to a weekly high, benefiting from geopolitical tensions, and gold buyers are holding back as they await key US inflation data.
Meanwhile, Bitcoin and Ethereum started the week on a down note, struggling to gain traction despite record inflows into crypto ETFs.
Following are the latest moves of the key assets:
On Monday, US Durable Goods Orders surged by 9.9% in July, far surpassing the expected 5.7% and reversing a prior decline. Similarly, the Dallas Fed Manufacturing Index jumped to its highest level since January 2023, reaching -9.7 for August compared to -17.5 previously. These strong US figures cast doubt on expectations for a dovish Federal Reserve, helping the US Dollar Index (DXY) recover from its 2024 lows, even as the Fed's September rate cut remains anticipated.
The US Dollar’s rebound was also supported by mixed risk news and a positive shift in market sentiment. The focus is now on upcoming economic indicators, such as Tuesday’s CB Consumer Confidence and Friday’s Core PCE Price Index, the Fed's preferred inflation gauge.
Geopolitical tensions added to market volatility, with increased Chinese military activity near Taiwan, Russia’s significant assault on Kyiv, and potential Russian sabotage in Germany raising concerns. Despite easing tensions in the Middle East, these events did little to boost market sentiment.
Oil prices rose sharply, driven by geopolitical issues and Libya’s declaration of force majeure halting production and exports. Strong industrial profit data from China also supported WTI crude, leading to its largest daily increase in two weeks and pushing prices to a weekly high.
The rising oil prices overshadowed Bank of Canada (BoC) rate cut expectations and political uncertainties in Canada, causing the USDCAD to fall to a five-month low. Canadian political instability, including the ruling party’s poor poll performance and potential new tariffs on Chinese goods, adds to the currency’s pressure.
In Europe, the EURUSD retreated from a 13-month high due to mixed German data, while the GBPUSD rebounded from a recent dip, reversing losses from its highest level since March 2022. Germany’s Consumer Confidence for September fell to -22.0, worse than expected, though the revised Q2 GDP showed a slight improvement.
The USDJPY recovered from a three-week low, buoyed by a bounce in Treasury bond yields and skepticism about further Bank of Japan rate hikes. Weaker Japanese Corporate Service Price Index data for July also supported the Yen.
In the commodity and Antipodean markets, the AUDUSD and NZDUSD moved higher, driven by China’s industrial profit data, despite a stronger US Dollar. Gold prices ended a two-day winning streak as the Dollar’s recovery and mixed economic outlook capped gains. The precious metal continues to hover near last week’s record highs amid uncertain risk sentiment.
After the US Dollar’s rebound on Monday, market participants will be looking closely at the upcoming US CB Consumer Confidence for August, along with stronger housing and Richmond Fed Manufacturing data, to support the Greenback. Despite this, the current cautious optimism might increase expectations for significant Fed rate cuts beyond September.
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