Dollar Steady as Market Powell-Ready

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Market Drivers August 24, 2018
Aussie holds steady after leadership change
Dollar frim ahead of Jackson Hole
Nikkei 0.85% Dax 0.06%
Oil $68/bbl
Gold $1190/oz.
Bitcoin $6500

Europe and Asia:
EUR EZ Flash PMI 54.4 vs. 54.5

North America:
USD US Durable Goods 08:30
USD Powell Speech at Jackson Hole

It’s been a quiet and steady night of trade in the FX market with most pairs contained to 30 pip ranges as markets awaited the speech of Fed Chair Jerome Powell at the Fed symposium at Jackson Hole.

The eco calendar has been barren with only New Zealand Trade balance today which printed slightly better at -143M versus -400M eyed. Elsewhere in the region, the Aussie survived the turmoil of Australian politics as Malcolm Turnbull lost a power struggle within his own party and will be replaced by former Treasurer Scott Morrison. Morrison is a social conservative who opposed last year same-sex marriage bill which passed with a majority. The Liberals as behind in the polls and Morrison is likely to be consigned to the dustbin of history as the the 30th Prime Minister of Australia (the country has had eight changes of leadership in the past decade).

Nevertheless, all the political theater is unlikely to have much geo-political impact and Fitch today reaffirmed the country’s ratings. Of much greater importance are the growing tensions with China especially after Australia banned Huawei from the 5G build out on security grounds. The weakness in iron ore and copper prices is also weighing on the unit, but in the very near term, the direction of the Aussie will simply come from dollar strength or weakness.

To that end today’s Powell speech at Jackson Hole promises to be a marquee event with traders particularly keen to see if the Fed Chairman reacts to jawboning from President Trump last weekend. It appears that the market has decided Jerome Powell will stick to his hawkish views if for no other reason than to push back on the President and maintain the independence of the Fed. Above all else, the Fed values its independence the most because if it is seen as been weak and open to manipulation by politicians its will lose its most important asset – market authority. Mr. Powell may acknowledge some recent slowdown in housing but will likely reiterate that Fed will continue with its normalization policy and keep the central bank on track for 2 hikes this year.

USDJPY has held bid ahead of the event all night long, and if Mr. Powell maintains his hawkish posture the pair could push towards 112.00 as the day proceeds.

Boris Schlossberg
Managing Director

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