The Euro continues to default lower on lack of new catalysts. Meanwhile, the Aussie is weaker on weak Chinese export data while a terrible Canadian employment report slightly dents the recently strong CAD.
Another day saw the currency market scratching around in vain for catalysts in Europe, as the default impulse was for the Euro to continue lower versus the USD, GBP and JPY on lack of new developments.
Before the European session, however, we certainly had a catalyst out of Asia, as a collapse in Chinese export growth finally had Aussie traders sitting up and taking a bit more notice as the Aussie settled back as far as 1.0500 in the early European session. This was yet another in a rash of weak export numbers in PMI’s and other data around the world of late and adds to the challenge the Chinese regime faces in reframing its economy in search of new growth. By the way, if you would like further evidence of the kind of challenges China faces in its financial sector, have a look at this article form Reuters from over the weekend that discusses the rise of so-called WMP’s in China and how they resemble a Ponzi scheme.
The RBA was also out overnight raising its forecasts for Australian growth, but it also mentioned the strong Aussie and risks that a strong currency held for Australia growth going forward, and more so than in previous cycles. Despite the positive outlook from the RBA, the market took about 10 bps back out of the year-forward RBA expectations.
Canada employment report
A terrible employment report out of Canada, as the July numbers showed a net -30k in payrolls vs. +6k expected. Optimists will out the +21k in full-time positions versus the nearly -52k in part time ones, but this was a stinker of a report and included a rise to 7.3% in the unemployment rate versus 7.2% previously. Canada’s data has been distinctly lacklustre of late and could develop into a bit more of a story from here – certainly putting the recent bearish USDCAD action at risk if that indeed proves the case. 1400 in the S&P500 and crude oil prices back above 90 dollars have taken USDCAD to below parity, but it may not tarry for long down here.
Chart: USD/CAD
USDCAD mulls whether to cross the rising trend-line or not after a rush lower on strong risk appetite and crude oil prices and as the currency market (among others) is pricing volatility risk at a post-global financial crisis low. The bulls have a lot of heavy lifting to do to right the damage in USDCAD, but a start would be a strong move back through parity and re-taking of the 200-day moving average.
USD/CAD" title="USD/CAD" width="455" height="284">
Looking ahead
In Europe, we continue to tread water within the range as we await political developments in September and ECB developments possibly before then aimed at liquidity provision. Peripheral spreads moved wider again on the day and are likely to continue to do so until we see signs of activity from the ECB. The EURUSD was pressured back toward 1.2250 and below by early US trading hours.
The idea that we are headed toward a German referendum on the EU is gaining currency after some German politicians have themselves brought up the idea (most notably the FDP’s Bruederle) and as it is circulated in the press today. The idea is that such a referendum might need to be held in connection with/after the September 12 decision by the German Constitutional Court on the constitutionality of the ESM.
Anyone reading my recent columns will note that I am uneasy with the market’s extreme complacency here ahead of a critical season that still awaits the EU and its next steps in addressing the debt crisis, the US presidential election and the fiscal cliff that may be approaching on January 1. Another reason that I am ill at ease with the market’s blinders for risk is the current level of food prices, which will inevitably trigger tensions of the political and potentially geo-political sort the longer grain prices hold up here. Today, the USDA issued a crop report predicting that this year’s corn harvest would be around 10.78M bushels, vs. last year’s 12.36M and somewhat lower than expectations heading into the report. Corn reached record prices in recent days (not a record if we adjust for inflation, as the early 1970’s prices were far higher) and are increasingly destabilizing with every uptick in prices, so keep an eye on what is going on there – as it affects everything from geopolitics (Iran and Egypt, for example) to Chinese policy (due to inflation risks).
Stay careful out there.
Economic Data Highlights
- Norway Jul. CPI out at -0.5% MoM and +0.2% YoY vs. -0.3%/+0.4% expected, respectively and vs. +0.5% YoY in Jun.
- Norway Jul. Underlying CPI out at 0.0% MoM and +1.3% YoY vs. -0.2% MoM/+1.2% YoY expected, respectively and vs. +1.2% YoY in Jun.
- UK Jul. PPI Input out at +1.3% MoM and -2.4% YoY vs. +1.3%/-1.5% expected, respectively and vs. -3.0% YoY in Jun.
- UK Jul. PPI Output out at 0.0% MoM and +1.7% YoY vs. 0.0% / +2.0% YoY expected, respectively and vs. +2.0% YoY in Jun.
- UK Jul. PPI Output Core out at 0.0% MoM and +1.3% YoY vs. +0.1%/+1.6% expected, respectively and vs. +1.7% YoY in Jun.
- US Jul. Import Price Index out at -0.6% MoM and -3.2% YoY vs. +0.2%/-2.5% expected
- Canada Jul. Unemployment Rate out at 7.3% vs. 7.2% expected and 7.2% in Jun.
- Canada Jul. Net Change in Employment out at -30.4k vs. +6.0k expected and vs. +7.3K in Jun.
Upcoming Economic Calendar Highlights (all times GMT)
- Japan Q2 GDP (Sun 2350)