Dollar Finds Buyers Despite Mixed Consumer Confidence

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Market Drivers for July 30, 2013
US Consumer confidence mixed but near pre-crisis levels
Aussie crumbles off weak housing data and dovish Stevens
Dow 0.07% Nikkei -3.32% Europe -0.01%
Oil $104.46/bbl
Gold $1329/oz.

Europe and Asia:
AUD Building Approvals -6.9% vs. 2.2%
JPY Household Spending -0.4% vs. 1.2%
JPY Jobless Rate 3.9% vs. 4.0%
JPY Industrial Production -3.3% vs. -1.4%
EUR German GfK Consumer Confidence Survey 7.0 vs. 6.9
EUR Euro-Zone Consumer Confidence
EUR German CPI -0.1% vs. -0.1%

North America:
USD Consumer Confidence 80.3 vs. 81.3

The greenback found some life in late morning North American trade despite a relatively mixed Consumer sentiment number that missed its mark on the headline basis. US July consumer confidence came in at 80.3 versus 81.3 eyed with the expectations component printing at 84.7 versus 91.1 the month prior.

The other underlying data however was quite good with present situation component registering a reading of 73.6 versus 68.7 – the highest since the pre-crisis levels of 2008. Jobs hard-to-get measure also improved to 35.3 versus 37.1 signaling an improvement in the labor market.

Overall the confidence numbers indicate that the consumer sentiment remains relatively positive as the US economy continues to expand at a steady but unremarkable pace. The greenback ignored the mixed signals in the report and gathered some momentum after the EUR/USD once again failed to hold the 1.3300 figure. The pair briefly breached that level, but quickly found sellers for the third day in a row.

With key economic data scheduled to start hitting the screens tomorrow, the currency markets remain subdued as traders prepare for the onslaught of news including ADP and FOMC on Wednesday that could prove to be highly volatile.

Earlier in Asian session the Australian dollar saw a sharp selloff after very weak housing data and uber-dovish commentary from RBA Chief Glenn Stevens sent the unit tumbling for more than 150 points.

Australian Building approvals contracted by -6.9% versus 2.2% eyed as demand for housing Down Under clearly slowed. However, the decline in AUD/USD really picked up momentum after RBA Governor Glenn Stevens reiterated his view that the currency remained overvalued in a policy speech earlier in Sydney today.

Dr. Stevens stated that, “”We have been saying recently that the inflation outlook may afford some scope to ease policy further if needed to support demand. The recent inflation data do not appear to have shifted that assessment.”

The OIS market jumped as high as 85% probability of rate cut in August off those remarks as traders quickly pushed the Aussie lower. Dr. Stevens then continued to talk the currency down by stating that Australia’s mining boom has peaked and that he expects the dollar to continues to depreciate as it reacts to the fall in the terms of trade.

The net result of Dr. Steven’s remarks was the equivalent of kicking the Aussie when it was down, as the pair absorbed all of the dovish news by falling through the 9100 figure before finally stabilizing at 9050. The shorts will no doubt continue to press their case as they gun for the key 9000 barrier, but if the RBA does not cut rates next week, the unit could see a sharp rebound on surprise short covering.

Boris Schlossberg
Managing Director

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