The US dollar reaped much of its gains against the other major currencies, contrary to expectations, despite fears that the recent political turmoil of President Trump's removal from office by the US House of Representatives in light of their investigations claiming that Trump was intervening to oust his rivals from the 2020 US elections. Before that, there are still expectations that the Fed may cut US interest rates for the third time before the end of this year to offset risks to the country's longest economic growth period. Against the EUR, the Dollar rose to a 28-month high, supported by the continued slowdown in the Eurozone economy. Against the pound, it gained to 1.2270, helped by mounting fears of a no-deal Brexit, amid fierce conflict between the British government and the opposition demanding an extension of the exit date, or an agreement with the EU ahead of the Oct. 31 deadline.
The gold price fell below the $1500 psychological resistance, to $ 1487 support for the first time in two weeks, amid USD gains.
Growth of the world's largest economy remains unchanged from the 2% rate in the third quarter at an annual pace, as was the case in the second quarter, and as expected. The strong US labor market continues to support consumption, the strongest engine of the US economy. The strength of recent housing data suggests that the decline in US interest rates is beginning to attract some highly sensitive economic sectors.
In the following lines we will review together the most important impact on the currency market forex this week:
Monday: ANZ New Zealand Business Confidence Index. In New Zealand, the ANZ business confidence index fell to -52.3 in August from -44.3 the previous month. The month reading was the lowest since April 2008, driven by increased domestic and global headwinds. Employment intentions fell to their lowest level since mid-2009 as companies announced their intentions to cut jobs, while the Activity Expectations Index and the Export Expectations Index became negative. Investment intentions and earnings outlook indicators fell further. Pricing intentions fell despite cost pressures and inflation expectations fell to their lowest level since late 2016. However, the capacity utilization index strengthened. Among the various sectors, indicators of commercial construction and residential buildings rose but remained in negative territory.
From China, ahead of a long public holiday, the official manufacturing PMI will be released. As the trade dispute with the United States continues, China's manufacturing sector continues to fall below the 50 level that separates growth from the slowdown. The Caixin Manufacturing Purchasing Managers' Index (PMI) will then be released, an independent survey, but also of significance. According to its results, China's manufacturing sector is still in strong growth. But it’s still under the threat of prolonged trade war with the United States.
The latest result indicated that manufacturing activity contracted for the fourth consecutive month amid growing trade tariffs with the US and slowing domestic demand. New orders and employment fell, while output growth slowed. Export orders fell for the 15th consecutive month and purchasing levels fell at the highest rate since February. Input prices fell to a seven-month low and production fees fell for the fourth consecutive month. Looking ahead, China's business sentiment fell to its lowest level since January.
Chinese Caixin PMI. In China, the Markit Economics Caixin Manufacturing PMI rose to 50.4 in August from 49.9 in July. The reading for the month surpassed analysts' expectations of 49.8 and indicated the strongest growth in the manufacturing sector since March. This was due to strong production growth over five months. Both employment and new orders remained broadly stable despite the fastest drop in export sales since November last year. Moreover, buying activity increased slightly for the second consecutive month. However, stocks of finished goods rose for the first time this year. Input costs have fallen at a faster pace since January 2016 due to widespread reports of raw material price reductions. Production fees also fell at the fastest rate since December 2015. Business sentiment weakened to the lowest level in the Chinese history due to concerns over ongoing trade disputes between China and the US and signs of a global economic slowdown.
British Current Account. In the UK, the current account gap widened to £ 30bn in the March quarter from £ 23.7bn in the previous quarter. The quarter reading was lower than analysts had forecast of a £ 32bn deficit. This was by far the largest current account gap since the quarter of September 2016, with the trade deficit rising to a height of £ 20.3 billion from £ 9.4 billion in the fourth quarter of 2018. The commodity gap increased to £ 47.0 billion from 36.9 In the previous period, the services surplus shrank to £ 26.8 billion from £ 27.5 billion in the fourth quarter. The secondary income gap rose to £ 6.6 billion from £ 5.9 billion in the previous period, but the basic income deficit fell to £ 3.2 billion from £ 8.4 billion.
Forecasts for the June quarter 2019: Account deficit of £19.2 billion.
Tuesday: Australian Building Approvals: In Australia, the number of approved homes fell 9.7 percent month-on-month in July after the previous month's reading was revised down to a 0.8 percent drop. The month's reading came in below analysts' forecasts with steady reading. This is by far the largest monthly decline in building permits in up to four months. Approvals for private non-residential housing declined. Between states and territories, New South Wales and Victoria saw a decline in housing approvals, but South Australia, Tasmania, Queensland and Western Australia saw increases in approvals.
Forecast for August 2019: 2.1 percent increase.
Australian interest rate: In Australia, the Reserve Bank of Australia decided to leave interest rates unchanged at a record low of 1.0 percent during the meeting in September as widely expected by analysts. Policymakers said interest rates were likely to remain low for an extended period of time, and an effort was needed to reduce unemployment and achieve the inflation target. The MPC also noted that it will continue to monitor the effects of June and July interest rate cuts and labor market developments.
Forecasts for October 2019: rate cut to 0.75 percent.
RBA Monetary Policy Statement: The RBA uses the interest rate statement as a tool for communicating with investors regarding monetary policy. It provides the results of the members' decision on setting interest rates. In addition, it contains a commentary about the economic conditions that affected their decision. More importantly, it provides an economic outlook and provides evidence of future monetary policy decisions of the bank.
Remarks by RBA Governor Philip Lowe: RBA Governor Philip Lowe is scheduled to make brief remarks at the RBA dinner in Melbourne. The Australian dollar is often very volatile to these comments, as traders try to understand the direction of future interest rates.
Canada's GDP: The Canadian economy grew 0.2 percent in June, same as the previous month. However, this month's reading came in above analysts' expectations of 0.1 percent. Commodity producers fell 0.2 percent due to a decline in the manufacturing sector. Increases in the production of durable goods, such as wood products and metals manufactured, were offset by declines in the manufacturing of non-durable goods such as food. On the other hand, service-producing industries rose 0.3 percent, supported by wholesale trade. In the service sector, wholesale trade grew, led by wholesale trade, machinery, equipment and supplies. Retail trade was driven by building materials, garden equipment and supplies, clothing and accessories, and general merchandise.
Outlook for July 2019: Canadian economy growth of 0.1 percent.
US ISM Manufacturing PMI in the US, the ISM Manufacturing PMI fell to 49.1 in August from 51.2 the previous month. The monthly reading beat analysts' expectations of 51.1. The August reading indicated that the manufacturing sector contracted for the first month since January 2016. Employment and new applications fell amid concerns over the US-China trade dispute.
Forecast for September 2019: 50.4.
Wednesday: ADP survey to determine US non-farm employment change: In the US, private companies hired 195,000 workers in August, more than analysts' expectations of 149,000 after the previous month's reading was revised to 142,000. The services sector added 184,000 jobs, driven by education, health, entertainment, hospitality, trade, transport, utilities, professional, commercial services and financial activities. The information sector lost 6,000 jobs. The commodity sector hired 11,000 workers mainly in manufacturing and construction. In the natural resources and mining sector, employment declined by the year 2000.
The outlook for September 2019 is 140,000 new jobs.
US crude oil inventories: In the United States, crude oil inventories rose by 2.412 million barrels during the week ended September 20 after an increase of 1.058 million barrels in the previous period. Analysts had expected inventories to fall by 0.249 million barrels. Gasoline inventories rose 0.519 million barrels after an increase of 0.781 million barrels the previous week. Analysts had expected gasoline stocks to rise 0.296 million barrels.
Thursday: US ISM Services PMI in the US, the ISM Manufacturing PMI rose to 56.4 in August, rebounding from a three-year low of 53.7 recorded the previous month. This month's reading beat analysts' expectations of 54 and indicates strong growth in the services sector in three months. New orders rose at the fastest rate since February, while business activity increased more than ever since 2008.
The outlook for September 2019: 55.1.
Friday: Australian Retail Sales. In Australia, retail sales fell 0.1 percent month-on-month in July after rising 0.4 percent the previous month. The July reading beat analysts' expectations for a 0.2 percent gain. Retail sales fell for the first time since April due to lower sales in clothing, footwear and personal accessory stores; cafes, restaurants and takeaway shops; and other retail stores. Sales at home goods stores rose 0.1 percent. On the other hand, food stores have seen an increase in sales. The decline in sales at supermarkets was lower.
Forecasts for August 2019: Sales expected to increase by 0.5%.
Canadian Trade Balance: In Canada, the trade deficit widened to C$ 1.12 billion in July after adjusting the previous month's reading down to a deficit of C$ 0.06 billion. Analysts had expected the trade deficit to reach C$ 0.4 billion. While imports rose 1.2%, exports fell 0.9%. Moreover, Canada's trade surplus with the US shrank to C$ 4.58 billion from C$ 5.52 billion the previous month.
Forecasts for August 2019: $ 1.1 billion deficit.
Average hourly wage in the United States. Average hourly earnings for all private non-farm payrolls rose 0.4 percent month-on-month in August after a 0.3 percent rise in July. The August reading was slightly above analysts' expectations for an increase of 0.3 percent. This was the highest wage increase since February.
Forecasts for September 2019: Wages increase by 0.3%.
US Nonfarm Payrolls Change: In the US, nonfarm payrolls increased by 130,000 in August after adjusting the previous month's figure to 159,000. The month's reading fell short of analysts' forecasts of 158,000. Temporary workers census work in 2020. The health and financial sectors reported jobs, but the mining sector reported job losses.
Forecasts for September 2019: 140,000 jobs are expected.
US unemployment rate: In the United States, the unemployment rate reached 3.7 percent in August, the same number as the previous two months. The month's reading was in line with analysts' expectations. While the number of unemployed people decreased by 19 thousand to 6.0 million, employment increased by 590 thousand to 157.9 million. The labor force participation rate rose to 63.2 percent, the highest level since February, from 63.0 percent the previous month.
Forecasts for September 2019: Unemployment rate of 3.7 percent.
Remarks by Federal Reserve Governor Jerome Powell: Federal Reserve Chairman Jerome Powell is scheduled to make opening remarks at the Fed Fedens event in Washington, DC. The US dollar is often very volatile during his speech, as traders try to understand the direction of interest rates in the future.