Risk currencies gave up ground to the greenback as AUD/USD dropped into the 0.89 region while EUR/USD dropped below 1.32 to a low of 1.317. However, we have seen risk currencies gap higher this morning in response to a strong manufacturing PMI reading out of China and possibly on news the US will have to wait for approval/congress vote before a Syria strike. China’s PMI came in at 51, smashing expectations of around 50.6. This is big confidence booster given the recent string of positive economic readings out of China and really sets the tone for a recovery going forward. Given US politicians have struggled to agree on anything over the past four years, many traders are starting to bet on the fact that a strike will not eventuate.
It’s a big week on the economic calendar with plenty of central banks set to meet. After closing at 0.89 on Saturday morning, the pair has started trading at 0.894 ahead of a fairly busy week on the local economic calendar. We have building approvals and company operating profits due out at 11.30am. Building approvals are expected to show a 4% month on month rise after having contracted 6.9% in June. Company operating profits are expected to be up 0.9% for the second quarter. We also have commodity prices, the MI inflation gauge and the AIG manufacturing index due out. After surprising higher last week, the HSBC final manufacturing PMI print is due out at 11.45am and expectations will be riding high ahead of this.
The rate decision is due out tomorrow with just a 6% chance of a rate cut. The RBA is widely expected to remain on hold. We also have retail sales and current account data due out tomorrow. We feel the AUD could be in for a near term recovery given the improvement in China and downgraded fears of a US imminent attack on Syria. On top of that RBA commentary will be crucial as the market is split on a November cut. Staying on the central bank theme we have the BoJ, ECB and BoE all set to hit the wires on Thursday. USD/JPY has certainly started to make a move and traded as high as 98.62 this morning. With downgraded Syria fears, the yen’s safe haven appeal is fading and this is helping to support the pair.
EUR/USD is looking very vulnerable and near term support is in the 1.3180 region. On the USD side of things, the August non-farm payrolls print is due out on Friday and will continue to help shaping up tapering expectations.