US Dollar Soars as China Devalues Yuan, Looks Ahead to Fed-Speak

2015-08-11 05:57:00

Talking Points:

US Dollar Gains as China Devalues Yuan, Looks on to Dudley Commentary
Euro Unlikely to Find Lasting Follow-Through from German ZEW Survey
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The US Dollar outperformed in overnight trade, rising as much as 0.4 percent on average against its top counterparts. The move reflected the ripple effects of an unexpected move by the People’s Bank of China (PBOC) to devalue the official reference rate for the Yuan by 1.9 percent, the most on record. The currency plunged against the greenback, pushing the latter currency higher across the board.

The PBOC billed the move was a one-off realignment, saying the Yuan’s effective exchange rate had become “relatively strong” compared with market expectations. The gap “undermined the market benchmark status” of the reference rate, according to a spokesman for the central bank.

Beijing expects the devaluation to “help enhance the market orientation” of the reference rate, which it sees as part of the broader effort to increase Yuan flexibility. Officials also said they will expand FX trading hours to promote the establishment of a single on- and off-shore exchange rate.

Chatter around the financial markets reflected suspicion that the devaluation was designed to boost exports after data released over the weekend showed overseas sales fell 8.3 percent in July, the most in four months. China had been supporting the Yuan to discourage capital outflows and promote the currency’s use on global markets, shrinking FX reserves by nearly $300 billion over the past 13 months in the process.

Looking ahead, Augusts’ German ZEW Survey of investor confidence headlines the economic calendar in European hours. The forward-looking Expectations index is seen edging higher to 31.9 from the 29.7 reading recorded in July, snapping a four-month losing streak. An upbeat outcome seems unlikely to offer a lasting boost to the Euro however considering its limited implications for near-term monetary policy as the ECB’s QE effort continues.

Thereafter the spotlight will shift to Fed-speak once again, with scheduled commentary from Bill Dudley, the President of the central bank’s New York branch, set to cross the wires. Traders will be keen to see if the influential FOMC member’s remarks support analysts’ bets on a rate hike in September. If they materialize, such comments may boost the US Dollar.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
22:00	NZD	ANZD Truckometer Heavy (MoM) (JUL)	-0.3%	-	2.0%
22:45	NZD	Card Spending Total (MoM) (JUL)	1.1%	-	0.70%
22:45	NZD	Card Spending Retail (MoM) (JUL)	0.4%	0.5%	0.5%
23:01	GBP	BRC Sales Like-For-Like (YoY) (JUL)	1.2%	1.0%	1.8%
23:30	AUD	Weekly Consumer Confidence Index (AUG 9)	112.5	-	112.9
23:50	JPY	Money Stock M2 (YoY) (JUL)	4.1%	3.9%	3.9%
23:50	JPY	Money Stock M3 (YoY) (JUL)	3.3%	3.2%	3.2%
00:30	CNY	New Yuan Loans (CNY) (JUL)	1480.0B	750.0B	1279.1B
00:30	CNY	Aggregate Financing (CNY) (JUL)	718.8B	1006.7B	1858.1B
00:30	CNY	Money Supply M0 (YoY) (JUL)	2.9%	3.1%	2.9%
00:30	CNY	Money Supply M1 (YoY) (JUL)	6.6%	4.9%	4.3%
00:30	CNY	Money Supply M2 (YoY) (JUL)	13.3%	11.7%	11.8%
01:30	AUD	NAB Business Conditions (JUL)	6	-	10
01:30	AUD	NAB Business Confidence (JUL)	4	-	8
06:00	JPY	Machine Tool Orders (YoY) (JUL P)		-	6.6%

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
06:00	EUR	German Wholesale Price Index (MoM) (JUL)	-	-0.2%	Low
06:00	EUR	German Wholesale Price Index (YoY) (JUL)	-	-0.5%	Low
09:00	EUR	German ZEW Survey Current Situation (AUG)	64.2	63.9	Medium
09:00	EUR	German ZEW Survey Expectations (AUG)	31.9	29.7	Medium
09:00	EUR	Eurozone ZEW Survey Expectations (AUG)	-	42.7	Medium