US Dollar Ignores Risk Trends, Outperforms Despite Asian Stock Gains

Key Overnight Developments

• Australian Wages Add Least in Nearly 4 Years, Bolster Flat RBA Outlook
• New Zealand Consumer Confidence Broke Losing Streak in August, Says ANZ
• US Dollar Breaks with Risk Trends, Outperforms Despite Asian Stock Gains

Critical Levels

The Euro and the British Pound declined, down 0.4 and 0.2 percent against the US Dollar(see below). We remain flat EURUSD and GBPUSD.

Asia Session Highlights

The US Dollar rose against all of its major counterparts despite an upswing across Asian stock exchanges, where shares added 0.3 percent on speculation Japanese authorities will step up stimulus efforts the disappointing second-quarter GDP result. The Yomiuri newspaper reported that the government will extend a low-interest mortgage program that was set to expire in December by an additional year while the Sankei newspaper said the Bank of Japan will boost its lending facility to push borrowing costs lower and weaken the Japanese Yen.

Australian Weekly Wages rose 0.8 percent in the three months through May, marking the smallest quarterly increase in nearly four years. Private wages excluding overtime rose 0.7 percent – the smallest gain since the quarter ending November 2007 – pointing to tepid inflationary pressure and giving the central bank ample room to keep monetary policy on hold for the time being. Furthermore, mining wages rose just 6.4 percent from the prior period, marking the smallest gain in at least five months and hinting that the crucial sector that had kept Australia relatively insulated from the 2008 global meltdown may be finally losing pace amid fading demand from China – its largest overseas export market. Indeed, Beijing has stepped up efforts to cool the East Asian giant’s economy amid fears of asset bubbles and runaway inflation.

New Zealand Producer Prices rose for the second consecutive quarter, albeit at a slower pace, adding 1.1 percent in the three months through June after rising 1.8 percent in the previous period. Separately, Consumer Confidence rose for the first time in three months in August according to ANZ National Bank Ltd, adding 0.6 percent.

Euro Session: What to Expect

UK Retail Sales headline the economic calendar in European hours, with core receipts (excluding auto fuel) set to rise 1.8 percent from the previous year in July to register the smallest annual increase in three months. The outcome’s market-moving potential seems limited however, with traders likely to have priced the slowdown in retail activity after the release of an analogous report from the British Retail Consortium last week, with BRC Director General Stephen Roberts calling on the central bank to resist the urge to raise interest rates as consumers fret about the onset of the government’s austerity measures.

Elsewhere on the docket, German Producer Prices are set to rise 0.1 percent in July to post the smallest increase in five months, reinforcing expectations of a static European Central Bank as inflationary pressure remains manageable. Furthermore, lending conditions have actually turned more restrictive in the aftermath of last month’s expiry of the central bank’s 12 month repo – a lending facility allowing European banks to secure access to the central bank’s funds for a year – that amounted to a large liquidity drain and upward pressure on short-term borrowing costs. On balance, it seems reasonable then that Jean-Claude Trichet and company are probably in no hurry tighten further, particularly as economic growth faces considerable headwinds from the currency bloc’s debt-cutting efforts.

Turning to sentiment, US stock index futures are tracking 0.3 percent higher in late Asian trade, hinting at losses for the still firmly safety-linked Japanese Yen, though the implications for the US Dollar are not as clear-cut after the greenback rose despite rallying shares in the overnight session.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com