US Dollar, Japanese Yen to Extend Losses as Risk Appetite Firms

Key Overnight Developments

• US Dollar, Japanese Yen Slump as Stocks Advance in Asian Trade
• Australian Inflation Drops to Lowest in 4 Months, Says TD Securities

Critical Levels

The Euro and the British Pound added 0.2 percent apiece against the US Dollar as firming risk appetite weighed on the safety-linked greenback in Asian trade (see below). We remain flat EURUSD and GBPUSD.

Asia Session Highlights

Risk sentiment dominated price action in overnight trade, with the safety-linked US Dollar and Japanese Yen broadly lower as Asian stocks advanced. The MSCI Asia Pacific regional benchmark equity index rose 1 percent on improved earnings reports and forecasts including an upgraded outlook from Honda Motor Co, Japan’s largest car manufacturer.

On the data front, Australian Inflation slowed dramatically in July, with the annual growth rate falling to 2.8 percent from 3.6 percent in the previous month according to a report from TD Securities. The outcome reinforced expectations of static monetary policy for the time being, with a Credit Suisse gauge of the priced-in rate hike outlook calling for no further tightening for the next 12 months. The AiG Performance of Manufacturing Index proved to be a mitigating factor however, showing the industrial sector growth snapped a two-month losing streak to accelerate in July. Separately, an index of New Zealand Commodity Prices from ANZ Bank fell for the second consecutive month, down 0.8 percent in July following a revised 1.6 percent drop in June. Exports account for close to 30 percent of the overall economy, hinting New Zealand’s recovery may flounder as slower price growth weighs on a sector already hamstrung by the currency’s 9.8 percent appreciation in the year to July.

Euro Session: What to Expect

The economic calendar looks fairly tame, leaving risk sentiment as the go-to catalyst for exchange rates in European hours. US equity index futures are firmly higher, up 0.7 percent in late Asian trade to hint risk appetite is likely to remain supported going forward and promising further losses for the US Dollar and Japanese Yen against the spectrum of major currencies.Swiss Retail Sales and the SVME Purchasing Manager Index headline scheduled event risk, but the focus on risk trends is likely to see traders looking past these releases toward the US ISM Manufacturing gauge set to cross the wires late into the session with the health of the world’s largest consumer market still seen as the bellwether of the global recovery at large.

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