Dollar Rally Stumped by Trump; Euro Finds Fresh Bid

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Market Drivers August 23, 2017
NZ Growth revised lower
EZ PMI beat
Nikkei 0.26% Dax -0.10%
Oil $48/bbl
Gold $1286/oz.

Europe and Asia:
NZD Net Debt Forecast 22.5%
EUR PMI 55.8 vs. 55.5

North America:
USD New Home Sales 10:00

It was a busy night of trade in the FX market today with newsflow creating a wide variety of moves in both majors and the commdollars.

In New Zealand the Pre- Election economic update caused a stir as it forecast GDP growth for 2017-2018 period at 3.5% versus 3.7% originally eyed. Although the growth forecasts were still quite robust, the downward revision sent kiwi into a tailspin and the pair dropped to a low of .7206 before finding some support. Lower growth projections will keep RBNZ stationary for the foreseeable future and that is likely to weigh on the kiwi going forward.

In Europe, the EZ Flash PMI’s reading was a bit mixed with Manufacturing soaring but services slowing down a bit. German Manufacturing PMI hit 59.4 its best reading in six years but overall the EZ Composite PMI rose only to 55.8 versus 55.5 eyed. Still, the region continues to generate surprisingly strong growth which is likely to push ECB towards a more hawkish policy path sooner rather than later.

For now, however, ECB officials remain noncommittal about any policy changes and President Draghi was tight-lipped about any future plans for action in a speech today. After an initial flurry higher, the EURUSD settled down a bit unable to breach the 1.1800 figure.

As we move towards the end of the week, the focus will shift to the Fed and the Jackson Hole symposium. If Fed officials continue to signal that a rate hike in December is likely the dollar rally which yesterday saw some nascent signs of revival, may resume in earnest.

USDJPY actually had a very strong Asia open last night running towards the 110.00 level, but the move was undone by yet another wild Donald Trump speech in which he suggested that he may shut down the government if the funding for the wall on the US-Mexico border is not approved. It is precisely because of such unhinged comments that the greenback can’t get any traction to the upside, despite relatively strong US fundamentals. Today, the market will get a look at flash PMI and New Homes Sales reports and if the data proves supportive it could make another run at that key 110.00 level as the day proceeds, but President Trump remains the greatest existential threat to the dollar rally and if he makes any further destabilizing comments to rally in the pair could come to a quick end.

Boris Schlossberg
Managing Director

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