FX market outlookPosted on Monday, July 31 2017 at 8:32 am GMT+0000
The US dollar gained during the Asian session, with the dollar index up 0.20% to last trade at 93.44. The session was busy with ample of data from Asian economies signaling economic expansion. The euro and sterling declined against the US currency. Oil prices rose while gold gave up on some of Friday’s significant gains.
Data signalling the latest economic activity in China was the main news of the day. While activity in the world’s second largest economy continued to expand, as the official PMI remained above the 50-point mark, the pace of growth slowed in July. At 51.4, the official manufacturing PMI narrowly missed estimates of 51.6 and was below the prior month’s 51.7. However, due to expanding government investment projects the construction industry boomed, lifting investors’ confidence. The construction sector remained robust with the PMI reading showing a pickup to 62.5 from 61.4 in June. This further spurred demand for steel, cement and other building materials.
The news out of China came as investors were trying to gauge global growth with US second quarter GDP showing steady expansion at 2.6% according to data released on Friday and Japan’s monthly industrial production rebounding from a 3.6% decline to a 1.6% gain in June, based on the preliminary figures released earlier today. Dollar/yen was last trading at 110.68.
While the world’s top three economies are showing positive momentum, the geopolitical risks have induced investor worries again. Russia has ordered the US to withdraw a large percentage of its diplomats that are currently serving in Russia, following the new sanctions on Russia that US Congress approved last week. Further to this, North Korea tested another intercontinental ballistic missile for the second time in weeks.
New Zealand winter months took a toll on business confidence there with sentiment cooling down in July to 19.4% from 24.8% in June. Rising construction costs and labor skill shortages contributed to lower optimism, but recovery in dairy prices provided some support. Tempered business sentiment is usual during winter months in New Zealand hence the country’s currency didn’t take much notice of the drop in sentiment. Kiwi/dollar rose slightly following the data release, but traded lower around the 0.7499 mark in the late Asian session to be broadly flat on the day. The labor report due on Wednesday could strengthen the kiwi against its US counterpart should the report show tightening employment activity.
While sales of new homes in Australia plunged last month to the lowest since 2013, the aussie rose against the greenback following the news. New home sales fell 6.9% in June from May, reversing two months of gains. However, this release was not of interest to forex traders as China PMI data was published at the same time, which pushed the aussie up. Aussie/greenback was last slightly up at 0.7978 ahead of the European session.
The euro was slightly weaker against the greenback during the Asian session to last trade at $1.1733. Traders will be closely monitoring the release of the flash CPI figure for July for the eurozone, today at 9:00 GMT.
Sterling was also under some pressure against the greenback today, with pound/dollar last trading at 1.3110.
Looking at commodities, oil prices gained, hitting a two-month high on a tighter US market and possible sanctions against Venezuela. WTI was last trading at $49.88 a barrel while Brent was at $52.76. Gold on the other hand declined during the session to last trade at $1,266.80 an ounce.