Action Insight

RBA's minutes for the August meeting revealed that policymakers were optimistic over the global and domestic economies. However, they reiterated the warning of the strength of Australian dollar, noting that its appreciation would curb growth and inflation over time. The central bank signaled concerns over the housing market and household debt, while appeared more comfortable over the employment situation. AUDUSD recovered after the release of the minutes.

Dollar rebounds broadly today while Yen and Swiss Franc lead the way down as risk aversion seems to have eased. US officials tried to talk down the risk of war with North Korea. European indices are trading generally in positive as FTSE is gaining 0.5% while DAX is is up 1.1%. US futures point to higher open where DOW might have triple digit gain. In other markets, Gold starts to feel heavy ahead of 1300 and dips back below 1290 today. WTI crude oil is struggling in tight range below 49. The US economic calendar is empty today. The immediate focus is that US President Donald Trump would order a broad probe of China's unfair trade practices today including intellectual property thefts.

Chinese macroeconomic activities showed sharper than expected slowdown in July. Retails sales grew +10.4% y/y in July, down from +11% a month ago. The market had anticipated a milder moderation to +10.8%. Industrial production expanded +6.4% y/y in July, decelerating from +7.6% in the prior month. This came in weaker than consensus of +7.1%. Urban fixed asset investment expanded +8.3% in the first 7 months of the year, slowing from +8.6% in the first half of the year. The market had anticipated a steady growth of +8.6%. The slowdown in economic activities in China has been widely expected as the government pledged to deleverage in at attempted to defend and prevent systematic risks. However the abovementioned three major indicators came in even weaker than expectations. We expect Chinese economic growth to moderate in the second half of the year. Yet, the strength in the first half (GDP growth: +6.9%) signals that the government's full year target of 'around +6.5%' should be able to achieved.

Dollar recovers broadly today as the markets are calmed down from the concerns over US-North Korea tensions. Meanwhile, Yen and Swiss Franc also soften mildly as a result. There was no further drastic development regarding the tension during the weekend. Chinese President Xi Jinping had a telephone call with US President Donald Trump on Saturday and urged a peaceful resolution to the issue, and all sides to avoid words or actions that escalate the tensions. Focus will temporary turn back to minutes of Fed, RBA and ECB, as well as a large number of global economic data. But markets will also keep one eye on the US-North Korea development.

Risk aversion dominated the markets last week as tension between US and North Korea suddenly intensified on verbal exchanges of the leaders. DOW initial made new record high at 22179.11 but ended the week down -234.49 pts or -1.06% at 21858.32. S&P 500 closed down -35.51 pts or -1.43% at 2441.32. European indices were harder hit with DAX closed down -283.66 pts or -2.31%. FTSE closed down -201.75 pts or -2.69%. Japan was on holiday on Friday but Hong Kong HSI closed the week down -2.46%. US yields was further hit by tame CPI and PPI data with 10 year yield closed at 2.189, taking out 2.225 near term support decisively. In the currency markets, Yen and Swiss Franc ended as the strongest ones on risk aversion. Commodity currencies ended as the weakest ones, followed by Sterling. Gold surged on risk aversion and Dollar weakness and closed up 2.4% at 1295. WTI crude oil traded like a passerby and struggled to regain 50 on another attempt.

Dollar suffers selloff against most major currencies except Sterling after slightly weaker than expected CPI data. But it's Euro that really shines in early US session, extending recent rally against Sterling and is trying to rebound against Yen and Swiss Franc. That could be technical driven as both EUR/JPY and EUR/CHF are close to near term fibonacci support. Still, for the week as a whole, Yen and Swiss Franc are still trading as the strongest currencies. Commodity currencies and Sterling will likely end as the weakest on risk aversion.

Risk aversion continues to dominate the global financial markets. DOW dropped -204.69 pts, or -0.93% overnight to close at 21844.01, comparing to intra-week high at 22179.11. S&P 500 also lost -35.81 pts, or -1.45% to close at 2438.21. Selloff in equities extends in Asian session. While Japan is on holiday, but Hong Kong HSI is trading down -1.8%, Korean KOSPI down -1.7% and Australia ASX 200 down -1.3%. In the currency markets, Japanese yen remains the strongest currency, followed by Swiss Franc and commodity currencies are all under pressure. Gold is staying firm above 1290 and is still on course for 1300 handle. WTI crude oil, however, is heading back to 48 after breaching 50 briefly.

There is no change in the general risk-aversion mode in the financial markets today. Investors continue to watch the development of US-North Korea tension with much caution. Yen remains the strongest one but Aussie and Canadian Dollar are catching up. Gold extends recent rally and breaches 1290, setting to take on 1300 handle. WTI crude oil was lifted by news that OPEC raised demand forecast and breaches 50 handle finally. Dollar trades lower in early US session, in particular against Japanese Yen after disappointing PPI. New Zealand Dollar remains the weakest one after dovish RBNZ comments.

Risk aversion remains the main theme in the markets. Commodity currencies remain the weakest ones while Yen is staying firm. Dollar trades mildly higher but there is no follow through buying yet. RBNZ rate decision triggered a brief recovery in New Zealand Dollar but Kiwi is quickly back under pressure. Selloff in stocks seem to have stabilized though, with Nikkei hovering in tight range in red today, down around -0.15%. Gold is hovering between 1280/5 after yesterday's rally and is waiting for fresh inspiration. US-North Korea tension will remain the main focus today while data from UK and US will catch most attention.

As expected, the RBNZ left the OCR unchanged at 1.75%. Governor Wheeler reiterated that the monetary policy would remain accommodative for some time. The staff projection continued to forecast the first rate hike to come in 2H19. They also revised lower the short term inflation outlook and intensified the warning that a lower currency is needed for growth. NZDUSD jumped to a 3-day high of 0.7371 after the announcement, but gains were erased afterwards.

Yen and Swiss Franc remain the strongest major currencies today with US-North Korean tensions as the main theme of the markets. Japan Nikkei suffered steep selloff today by losing -1.29% to close at 19738.71. Major European indices follow with FTSE down -0.8%, DAX down -1.5% and CAC down -1.8% at the time of writing. Among the currencies, risk sensitive Aussie and Canadian Dollar are hardest hit, followed by Sterling and Euro. Risk aversion pushes gold to as high as 1282.4 so far today as recent rebound resumes. WTI continues to tread water between 48.5 and 49.0.

China's trade and inflation data surprised to the downside in July, likely drive by the government's targeted tightening monetary policy. GDP growth is expected to slow in second half of the year. Yet, given the strong readings in the first half, with the economy expanding +6.9% in both the first and second quarters, GDP growth should be able to meet government's target of “around +6.5%”. We believe the government would continue its tightening monetary policy in order to prevent and resolve systematic risks, and to curb excessive strength in property prices. Meanwhile, as ultra accommodative monetary policies across major central banks are coming to an end, with the Fed and BOC raising interest rates, while ECB will begin discussing reduction of asset purchases, it would be detrimental to the renminbi if the central bank pledges to maintain monetary easing. This would exacerbate capital outflow from China.

Yen surges broadly together with Swiss Franc as there are renewed focus on the tension between US and North Korea. US President warned overnight that North Korea "best not make any more threats to the United States". And, Trump said that "they will be met with fire, fury and, frankly, power the likes of which this world has never seen before." That's in response to North Korea's claim that it's ready to give US a "severe lesson". And North Korea claim that it's examining plans to strike US territory Guam. Analysts perceived Trump's response as aggressive. The comments sent DOW down to closed -0.15% lower at 22085.34, comparing to intraday high at 22179.11. USD/JPY breached 109.83 and is resuming recent decline from 114.49.

Sterling suffers renewed selling in generally quiet markets today. EUR/GBP is extending recent rise to as high as 0.9080 so far. GBP/USD is set to test on 1.3 handle. GBP/JPY is the biggest mover today as also affected by broad based rebound in yen. GBP/JPY's break of 144.01 near term support now opens up deeper fall to trend line support at around 142.00. Staying in the currency markets, New Zealand Dollar remains the weakest one as markets anticipate a dovish RBNZ statement later in the week. Canadian Dollar is the second weakest one as WTI crude oil continues to struggle to regain 50 handle. Euro is maintaining its status as the strongest one for the week while Dollar is mixed.

The broad-based selloff of Swiss franc of late has raised speculations of renewed SNB intervention. Yet, the latest release of FX reserve and sight deposit data suggest that it was unlikely the cause. We believe franc's depreciation, especially against the euro was mainly driven by yield differential as the ECB is approaching tapering of its asset purchase program while the SNB maintained the pledge to fight against deflation. EURUSD soared over +4% over the past two weeks while USDCHF gained about +3% during the period. The recent risk-on mode in the financial market has also raised franc's appeal as funding currency, thereby exacerbating its decline.

Dollar trades generally lower today after cautious comments from Fed officials. But New Zealand Dollar is even weaker as markets are preparing themselves for a dovish RBNZ rate statement later in the week. At the same time, weak China data is weighing on Aussie. Canadian Dollar also continues to pare back recent gains and as oil consolidates ahead of the release of the OPEC/non-OPEC meeting statement. Euro, Yen and Sterling are so far the relatively firmer ones, with Euro having an upper hand. The economic calendar is rather light for today and trading could remain subdued in summer mood.

Dollar is trying to regain momentum against most major currencies entering into US session, except versus Euro and Swiss Franc USD/CAD takes the earlier today by breaking last week's high. GBP/USD follows closely by taking out last week's low. Meanwhile Euro is so far trading firm against others. In particular, EUR/GBP is also resuming last week's rally and breaches 0.9050. Commodity currencies are trading generally soft today. In other markets, gold continues to hover in tight range between 1260/5. WTI crude oil's sideway consolidation extends and dips below 49 handle. Oil will take some more time to consolidate before having another attempt on 50 handle.

The financial markets are trading in risk-on mode as another week starts, boosted by last week's record run in US equities. In addition to being supported by the set of solid job data, comments from White House economic adviser Gary Cohn also provided some optimism to investors. Nonetheless, in the currency markets, Dollar has turned into consolidative mode instead and is waiting for fresh inspirations. Euro, on the other hand, is regaining some growth. New Zealand Dollar and Yen are trading as the weakest ones so far. In other markets, gold failed to stand firm above 1280 handle last week and retreated on Dollar's rebound. it's hovering in tight range of 1260/5 for the moment. WTI crude oil is also struggling to regain momentum for another attempt of 50 handle yet.

Dollar staged a strong rebound towards the end of the week as boosted by an overall set of solid job data. While the greenback still ended lower against Euro for the week, it's now looking likely that the greenback has found a short term bottom already. It's still early to confirm a trend reversal for Dollar yet. And we believe the key lies in the yet to be confirmed fiscal policy of US President Donald Trump. But for now, Dollar will probably gyrate higher in the early part of this week until CPI release on Friday. On the other hand, while Euro ended the week as the strongest currency, its rallies against Dollar, Yen and even Swiss Franc are starting to look tired. Sterling ended the week generally lower after markets perceived the BoE Super Thursday as a dovish one. But commodity currencies were even weaker with Canadian Dollar starting to pare back the strong gains in the past two months.

Dollar is given a lift in early US session by a set of overall solid employment. After initial hesitation, the greenback is gaining some upside momentum with GBP/USD dropping through 1.3096 minor support. USD/CHF also breaks last week's high at 0.9726 to resume rebound from 0.9347. Focus will now turn to 110.97 minor resistance in USD/JPY and break there will indicate near term bottoming. EUR/USD, though, stays firm above 1.1722 minor support and it's near term bullishness remains relatively safe.