Dollar Up on Confidence and Leading Indicators

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The dollar is trading higher against all of the major currencies this morning outside of the Japanese Yen, which continued to lose ground against the greenback. According to this morning’s U.S. economic reports, consumer confidence increased in the month of August thanks to the stabilization in equities and the rebound in the job growth. Leading indicators also surprised to the upside, rising 0.4% in July compared to a 0.2% forecast. As we said all week, U.S. data has been consistent with a gradual recovery in the economy and therefore poses little threat to USD/JPY and risk appetite.

With Spanish 10 year bond yields falling to a 6 week low and Eurozone reporting its largest current account surplus ever, the euro is holding steady against the U.S. dollar. The big focus for Europe next week will be the meeting between the Greek Prime Minister, German Chancellor, French President and Eurogroup head at the end of the week. It is now believed that Samaras may NOT ask the key players in Europe to extend its bailout program by 2 years, choosing instead to wait until the October EU Summit after the Troika report is complete. Samaras could still broach the subject to see if they are amenable and then formally submit the request 2 months from now.

While the market’s main focus is usually on the EUR/USD and USD/JPY, the real action today is in the AUD, which has fallen as much as 0.75% against the U.S. dollar and euro. The AUD became the day’s worst performing currency after the Treasury said rate cuts would be more effective in weakening the value of the Australian dollar than intervention. Despite the market’s big reaction, comments such as these are not unusual from the Treasury. However they lack punch because decisions on rate cuts are made by the Reserve Bank of Australia and not the Treasury.

Earlier this morning Canada released its consumer price report and CPI fell for the third consecutive month by 0.1%. The market was looking for an increase but discounts on clothing and lower energy prices offset higher food costs. On an annualized basis, CPI growth dropped from 1.5 to 1.3%. For the Bank of Canada, lower CPI continues to challenge their hawkish monetary policy stance and the rally in the Canadian dollar.

Kathy Lien
Managing Director

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