After a touch of weakness mainly across the board through yesterday’s session, the United States Dollar has caught a bit of a bid this morning through the G10 and most major and minor currencies.
Overview
The first GDP reading for Q2 was released this morning quite a bit stronger than expected, showing that GDP grew 2.8% last quarter compared with this period last year. Personal consumption also came in above expectations, rising 2.3%. The GDP price index, meanwhile, actually shrunk substantially from the first quarter of this year, only increasing 2.3% and placing economic growth firmly (at least by this reading) ahead of price growth.
Not all data released this morning, however, was entirely rosy. The core PCE price index for Q2, though below Q1, was above expectation and showed price growth of 2.9%. Such a difference between GDP and PCE price indices is rather unusual and is keeping some FX market movements more muted than may otherwise be the case. Durable goods orders also absolutely cratered in June, declining 6.6%. Nonetheless, the US, especially when comparing its economic picture to that of China, looks to be in a much better situation than many thought would be the case after anemic growth in the first quarter of this year and lackluster corporate earnings to begin this week. The Eurozone and UK, in addition, showed relatively poor PMI readings yesterday in comparison with the US’s fairly strong release. All told, it seems the US economic dominance as of late may not be over quite yet. Traders, after spending the last several weeks anticipating more cuts from the Federal Reserve than the Fed itself believed it would institute this year, have begun to pare back those bets. In all likelihood, the Fed will still cut rates by 25 basis points in September, but the rest of the year’s schedule is very much up in the air, and jobs figures for the month of July will be closely watched.
Tomorrow’s full PCE reading is also going to be quite important to traders, especially given the differential this morning between PCE and GDP price indices. Traders are unwilling to place all their eggs in the US’ proverbial basket, given the cracks showing in the domestic labor market and slower consumer demand than last summer.
What to Watch Today…
- US PCE, Friday 8:30 AM
- Monex USA Online is always open.
AUD ⇓
The Australian and New Zealand Dollars are once again at the bottom of the G10 basket this morning as safe haven currencies are outshining and the US’s economic picture remains stronger than expected. As two of China’s major trading partners, mounting concerns surrounding the health of the Chinese economy are weighing heavily on the pairs, and oil prices continue to fall, denting all commodity currencies this week. The AUD/USD pair, in particular, has lost up to 3.7% this month, more than half a percent of which has come this morning alone.
CAD ⇓
After the Bank of Canada cut its key interest rate by 25 basis points yesterday, the Loonie lost roughly 50 basis points of ground yesterday and is a further quarter of a percent weaker against USD this morning. Our neighbors to the north are facing down a much less rosy economic picture, with stagnant economic growth and higher unemployment both coupled with rather entrenched inflation, placing policymakers between a rock and a hard place. CAD is currently hovering at or near its weakest level against USD since November of last year.
