Dollar, Yen Vulnerable as Risk Appetite Recovery Aims to Continue

2012-08-07 08:15:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Dollar, Yen Sold on Waning Haven Demand as Stocks Rise in Asia
Soft UK, Eurozone Economic Data Unlikely to Derail Risk-On Tone
Australian Dollar Outperforms as RBA Stays in Wait-and-See Mode

The US Dollar and the Japanese Yen declined in overnight trade as Asian stocks advanced, denting demand for the go-to haven currencies. The MSCI Asia Pacific regional benchmark stock index rose 0.6 percent, bolstered by reports of German support for ECB efforts to trim periphery borrowing costs. Arguments in favor of further QE from the Fed’s Eric Rosengren and John Williams, Presidents of the central bank’s Boston and San Francisco branches respectively, were likewise supportive.

The Australian Dollar narrowly outperformed after the Reserve Bank of Australia left the benchmark interest rate unchanged at 3.5 percent, as expected. The statement accompanying the policy announcement continued to project a wait-and-see posture, hinting RBA Governor Glenn Stevens and company are in no hurry to resume the easing cycle.

An update on European economic growth environment comes in the form of UK Industrial Production and Italian GDP figures in the hours ahead. The former release is expected to show output fell 3.5 percent in June, marking the sharpest monthly drop in a decade, while the latter confirms the Eurozone’s third-largest economy shrank for a third consecutive quarter. Separately, German Factory Orders are expected to slip 0.8 percent, reinforcing fears of spreading malaise from the periphery and into the core of the currency bloc.

While certainly not supportive, these outcomes reinforce already well-established expectations of a downturn in regional European growth rather than offer something new into the equation. With that in mind, it seems unlikely that the day’s data set has scope to generate meaningful risk aversion. Indeed, S&P 500 stock index futures are pointing firmly higher, hinting the risk-on mood noted overnight is likely to carry forward.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
22:45	NZD	Average Hourly Earnings (QoQ) (2Q)	0.2%	0.5%	1.3%
22:45	NZD	Private Wages ex Overtime (QoQ) (2Q)	0.5%	0.6%	0.5%
22:45	NZD	Labor Cost Private Sector (QoQ) (2Q)	0.5%	0.5%	0.5%
23:01	GBP	BRC Sales Like-For-Like (YoY) (JUL)	0.1%	-0.2%	1.4%
23:50	JPY	Official Reserve Assets ($) (JUL)	1272.8B	-	1270.6B
4:30	AUD	RBA Rate Decision (AUG 7)	3.50%	3.50%	3.50%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
5:45	CHF	Unemployment Rate s.a. (JUL)	2.9% (A)	2.9%	Medium
5:45	CHF	Unemployment Rate (JUL)	2.7% (A)	2.7%	Medium
7:00	CHF	Foreign Currency Reserves (JUL)	406.5B (A)	365.1B	Low
7:15	CHF	Consumer Price Index (MoM) (JUL)	-0.5% (A)	-0.3%	Medium
7:15	CHF	Consumer Price Index (YoY) (JUL)	-0.7% (A)	-1.1%	Medium
7:15	CHF	CPI - EU Harmonised (YoY) (JUL)	-0.3% (A)	-1.2%	Medium
7:15	CHF	CPI - EU Harmonised (MoM) (JUL)	-0.8% (A)	-0.2%	Medium
8:00	EUR	Italian Industrial Production sa (MoM) (JUN)	-1.0%	0.8%	Low
8:00	EUR	Italian Industrial Production nsa (YoY) (JUN)	-	-6.8%	Low
8:00	EUR	Italian Industrial Production wda (YoY) (JUN)	-6.5%	-6.9%	Low
8:30	GBP	Industrial Production (MoM) (JUN)	-3.5%	1.0%	Medium
8:30	GBP	Industrial Production (YoY) (JUN)	-5.3%	-1.6%	Medium
8:30	GBP	Manufacturing Production (MoM) (JUN)	-4.3%	1.2%	Low
8:30	GBP	Manufacturing Production (YoY) (JUN)	-5.7%	-1.7%	Low
9:00	EUR	Italy to Approve Spending Cuts	-	-	-
9:00	EUR	Italian GDP s.a. and w.d.a. (QoQ) (2Q P)	-0.8%	-0.8%	Medium
9:00	EUR	Italian GDP s.a. and w.d.a. (YoY) (2Q P)	-2.5%	-1.4%	Medium
10:00	EUR	German Factory Orders n.s.a. (YoY) (JUN)	-7.0%	-5.4%	Medium
10:00	EUR	German Factory Orders s.a. (MoM) (JUN)	-0.8%	0.6%	Medium