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Aussie Dollar Drops After Bond Sale, Euro at Risk on German GDP

Aussie Dollar Drops After Bond Sale, Euro at Risk on German GDP

Ilya Spivak,

Talking Points:

  • Australian Dollar drops after 7-year government bond auction results
  • Euro may decline if 2Q German GDP figures stoke ECB easing bets
  • US retail sales, consumer confidence data may drive Fed speculation

The Australian Dollar underperformed in overnight trade, falling after the results of a 7-year government bond auction crossed the wires. The bid-to-cover ratio registered at 2.39 and the average yield posted at 1.71 percent, down from 3.00 and 1.73 percent recorded the last time analogous paper was sold in late July.

The results point to reduced demand and weaker rate expectations, which may imply bets on further RBA easing ahead. Indeed, front-end borrowing costs fell alongside the currency. Traders are currently pricing in at least one more 25bps reduction in the cash rate over the coming 12 months. The Yen weakened as Japan’s benchmark Nikkei 225 index advanced, eroding demand for the anti-risk currency.

Looking ahead, second-quarter German GDP figures enter the spotlight. Output is expected to add 0.2 percent, marking the smallest gain since the third quarter of 2014. A soft result may weigh on risk appetite, punishing sentiment-geared currencies including the Aussie. It may also fuel ECB stimulus expansion bets, sending the Euro downward.

Later in the day, the spotlight turns to July’s US Retail Sales report and Augusts’ preliminary University of Michigan consumer confidence reading. Receipts growth is expected to slow (0.4 percent vs. 0.6 percent prior) while sentiment firms (91.5 vs. 90.0 prior). It will be curious to see if the results create momentum in the priced-in Fed rate hike outlook, where indecision has prevailed for the past three weeks.

What do retail traders’ buying and selling decisions say about FX price trends? Find out here !

Asia Session

GMTCCYEVENTACTEXPPREV
22:30NZDBusinessNZ Manufacturing PMI (JUL)55.8-57.6
22:45NZDRetail Sales Ex Inflation (QoQ) (2Q)2.3%1.0%1.0%
01:30AUDCredit Card Purchases (AU$) (JUN)25.5b-26.0b
01:30AUDCredit Card Balances (AU$) (JUN)52.2b-51.9b
02:00CNYIndustrial Production (YoY) (JUL)6.0%6.2%6.2%
02:00CNYIndustrial Production YTD (YoY) (JUL)6.0%6.0%6.0%
02:00CNYRetail Sales (YoY) (JUL)10.2%10.5%10.6%
02:00CNYRetail Sales YTD (YoY) (JUL)10.3%10.3%10.3%
02:00CNYFixed Assets Ex Rural YTD (YoY) (JUL)8.1%8.9%9.0%

European Session

GMTCCYEVENTEXPPREVIMPACT
06:00EURGerman Wholesale Price Index (MoM) (JUL)-0.6%Low
06:00EURGerman Wholesale Price Index (YoY) (JUL)--1.5%Low
06:00EURGerman CPI (MoM) (JUL F)0.3%0.3%Medium
06:00EURGerman CPI (YoY) (JUL F)0.4%0.4%Medium
06:00EURGerman GDP SA (QoQ) (2Q P)0.2%0.7%High
06:00EURGerman GDP WDA (YoY) (2Q P)1.4%1.6%High
06:00EURGerman GDP NSA (YoY) (2Q P)2.8%1.3%High
08:00EURItalian GDP (QoQ) (2Q P)0.2%0.3%Medium
08:00EURItalian GDP (YoY) (2Q P)0.8%1.0%Medium
08:30GBPConstruction Output (MoM) (JUN)-1.0%-2.1%Low
08:30GBPConstruction Output (YoY) (JUN)-2.1%-1.9%Low
09:00EUREurozone Industrial Production (MoM) (JUN)0.5%-1.2%Low
09:00EUREurozone Industrial Production (YoY) (JUN)0.7%0.5%Low
09:00EUREurozone GDP (QoQ) (2Q P)0.3%0.3%High
09:00EUREurozone GDP (YoY) (2Q P)1.6%1.6%High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.10431.10991.11181.11551.11741.12111.1267
GBP/USD1.27891.28811.29191.29731.30111.30651.3157

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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