Cable, Aussie Lead The Way As Data Beats

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Market Drivers for September 4th, 2013
AU GDP better helping to lift AUD through 9100
UK PMI Services again beats with new orders highest since 1997
Nikkei .54% Europe -.68%
Oil $108/bbl
Gold $1405/oz.

Europe and Asia:
AUD GDP 0.6% vs. 0.5%
GBP Services PMI 60.5 vs. 59.3
EUR Retail Sales 0.1% vs. 0.5%
EUR GDP 0.3% vs. 0.3%

North America:
USD Trade Balance 8:30
CAD BOC Rate Statement 10:00

Aussie and cable were the stars of the show tonight as better than expected economic data fueled rallies in both currencies sending Aussie through the 9100 barrier while cable cleared the 1.5600 level.

In Australia the GDP data printed at 0.6% versus 0.5% eyed while year on year results came in at 2.6% versus 2.4% forecast. The upbeat numbers were the result of stronger consumer spending, a build in inventories and a larger government expenditures.

Overall the data showed that despite the decline in investment spending, as the mining boom cools, Australian economy is beginning to make an adjustment to a more balanced growth model. Perhaps this was the reason that the RBA assumed a more neutral posture in its statement yesterday as Australian monetary authorities saw some stabilization in final demand.

The Aussie rose steadily throughout the night reaching a high of 9150 in morning London dealing as short covering kicked in with force. After months of liquidation the pair has found a modicum of support at the 8800 level and this weeks positive economic data from China as well as better than forecast domestic results have helped the pair recover some of its losses. Given the change in sentiment it should continue to outperform for the rest of the day with longs eyeing the 9200 figure as their next target.

In UK the PMI Services completed the trifecta of beats as it printed at 60.5 versus 5900 eyed. The month’s prior reading was revised to 60.2. The rise was driven a sharp increase in new orders which came in at 61.3 versus 60.0 – their best level since 1997. The overall composite saw its best reading since records began in 1998.

The data confirmed that the UK economy is now in the midst of a full on mini boom and although unemployment remains high, growth is likely to improve markedly in the second half of this year. Cable ran through the 1.5600 barrier but the rally stalled just above that level as traders remain wary of BOE’s dovish stance. Still with eco numbers continually beating their mark it will become increasingly difficult for Mr. Carney and the MPC to remain unequivocally accomodative for much longer.

In North America, the US calendar is quiet with only the Trade Balance data on deck. In Canada however, the BOC will make its rate announcement at 1400 GMT. The markets expect the rates to remain at 1.0% but will listen carefully for any change of tone in the statement. Generally the BOC has been consistently dovish and the loonie has suffered as a result as US yields have outperformed Canadian yields. If the BOC maintains its accomodative stance USD/CAD could test the key resistance at the 1.0600 level as the day progresses.

Boris Schlossberg
Managing Director

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