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Brexit, Stats and the BoC put the GBP, the EUR and the Loonie in Focus

Bob Mason

Earlier in the Day:

It was another busy day on the economic calendar through the Asian session this morning. Key stats included service sector PMI numbers out of Japan and China and 2nd quarter GDP numbers out of Australia.

For the Japanese Yen

The August Service PMI rose from 51.8 to 53.3, coming up short of a forecasted 53.4. According to the Markit Survey,

  • Growth in new business drove the headline PMI in August to an almost 2-year high.
  • New business to overseas increased at the fastest pace in 9-months.
  • In spite of the strong demand from overseas, the pace of new business growth eased to a 13-month low.
  • Increased demand led to a rise in backlogs and a continued increase in hiring.
  • Service sector companies maintained a positive outlook over the next 12-months, though remained at close to a 2-year low.

The Japanese Yen moved from ¥105.896 to ¥105.864 upon release of the figures. At the time of writing, the Japanese Yen was down by 0.09% to ¥106.04 against the U.S Dollar.

For the Aussie Dollar

The economy grew by 0.5% in the 2nd quarter, quarter-on-quarter, following a revised 0.5% in the 1st quarter. Economists had forecast 0.5% growth. Year-on-year, the economy grew by 1.4%, which was in line with forecast. In the 1st quarter, the economy had grown by 1.8%.

According to the ABS,

  • Net exports contributed 0.6 percentage points to growth in the quarter, supported by strong exports of mining commodities.
  • Mining profits rose by 10.6%, driven by strong export growth and improved terms of trade, with mining investments also on the rise.
  • Government spending was the main contributor to growth in domestic final demand.
  • Household sector spending remained subdued, however, with 0.4% growth. Dwelling investments fell by 4.4%.

The Aussie Dollar moved from $0.67629 to $0.67823 upon release of the figures that preceded China’s service PMI.

Out of China

The Caixin Service PMI rose from 51.6 to a 3-month high 52.1 in August. According to the Caixin PMI survey,

  • An increase in new orders provided support in August, with new orders rising at the quickest pace in 4-months.
  • Overseas demand continued to rise, whilst the rate of increase in new export business eased from the previous month.
  • Rising demand supported the fastest rate of job creation since June 2018.
  • Confidence in the service sector improved to a 5-month high.
  • At the composite level, the PMI rose from 50.9 to 51.6, with new orders expanding at the quickest pace in 4-months. The pickup in activity led to a 1st rise in total employment since April.

The Aussie Dollar moved from $0.67757 to $0.67815 upon release of the survey. At the time of writing, the Aussie Dollar was up by 0.33% to $0.67818

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.09% to $0.6343.

The Day Ahead:

For the EUR

It’s a busy day ahead on the economic calendar. Service sector PMIs out of Spain, Italy and the Eurozone and retail sales figures from the Eurozone will provide direction on the day.

Barring deviation from prelim numbers, the markets will likely brush aside finalized PMI numbers out of France and Germany.

Outside of the numbers, expectations of monetary policy easing later this month will likely pin the EUR back from any relief rally. There was some good news on the political front, with Five Star Movement members voting in favor of forming a coalition government with the Democratic Party.

While an Italian snap general election was averted, a possibility of a snap election in Spain remains, however…

At the time of writing, the EUR was up by 0.02% to $1.0976.

For the Pound

It’s another relatively quiet day ahead on the data front. Economic data is limited to August’s Services PMI.

We can expect the Pound to react to the August figures. Any moves may be short-lived, however, as Brexit and British politics continue to take center stage.

On Tuesday, the prospects of a no-deal Brexit diminished as MPs voted in favor of taking control of parliament. Control gives the Pro-Remainers the option to propose a bill to delay Britain’s departure from the EU to January 2020 should the government fail to have a deal in place.

In response to the outcome, the British Prime Minister announced that he would be putting forward a motion for a general election.

The PM would require the support of the Labour Party, however, to garner the necessary votes for a general election. Corbyn has been clear that a bill to prevent Britain from leaving the EU without a deal would need to be in place before any general election.

Tuesday’s outcome is positive for the Pound, though we don’t expect a material upside with a general election looming…

At the time of writing, the Pound was up by 0.12% to $1.2096.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar, with the U.S trade data due out later today.

We would expect the numbers to have a relatively muted impact on the Dollar, however. The market focus will remain on the U.S – China trade war.

With economic data on the lighter side, we can expect scheduled speeches from FOMC members kashkari and Evans to also garner plenty of attention.

At the time of writing, the Dollar Spot Index was down by 0.09% to 98.915.

For the Loonie

It’s a big day ahead on the economic calendar, with 2nd quarter productivity, July trade figures and the BoC monetary policy decision in focus.

While we expect the Loonie to be responsive to the numbers, the trade data, in particular, any moves will likely be short-lived.

The market focus will be on the BoC rate statement. There is some uncertainty over whether the BoC will join other central banks in a round of policy easing.

Last week’s GDP numbers suggested otherwise…

The Loonie was up by 0.05% at C$1.3330, against the U.S Dollar, at the time of writing.

This article was originally posted on FX Empire

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