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US Dollar Drops on Divided FOMC, More Fed-Speak Eyed Ahead

US Dollar Drops on Divided FOMC, More Fed-Speak Eyed Ahead

Talking Points:

  • US Dollar sinks on FOMC minutes, Aussie and Kiwi outperform
  • Fed-speak in focus as markets search for coherent policy stance
  • UK retail sales, Eurozone CPI data may pass with little fanfare

The US Dollar traded broadly lower in overnight trade as Asian markets took their turn to respond to the release of minutes from July’s Federal Reserve monetary policy meeting. The document revealed an FOMC committee divided about how to balance domestic developments with external risks. Traders seemingly judged that deadlock will delay stimulus withdrawal and duly punished the greenback.

The Australian and New Zealand Dollars outperformed as the prospect of longer delay in Fed stimulus withdrawal fueled demand for better-yielding alternatives, boosting high-beta FX. The Aussie found additional support in unexpectedly strong employment data. The economy added a net 26.2k jobs in July, topping expectations calling for a 10k gain, while the unemployment rate ticked lower to 5.7 percent.

Fed-speak is in focus ahead, with commentary from San Francisco and New York Fed Presidents John Williams and Bill Dudley on the docket. Both policymakers triggered volatility earlier in the week: Williams published an essay calling for the Fed to alter its policy-setting framework to allow rates to stay lower for a longer time while Dudley railed against the markets’ under-pricing of on-coming hikes. The greenback dutifully dropped after Williams’ paper hit the wires, then rebounded just hours later as Dudley spoke.

From here, both policymakers have the benefit of having witnessed price action’s sensitivity to their pronouncements as well as the FOMC minutes document. With that in mind, it will be interesting to see if they opt to dig in their heels or seek to forge a somewhat unifying message in an attempt to offer the markets a more coherent sense of the central bank’s trajectory (at least to the extent that such a thing is possible).

UK Retail Sales figures and the final revision of July’s Eurozone CPI print headline the calendar in European trading hours. Both may pass with little fanfare considering their limited implications for near-term BOE and ECB policy bets. The former central bank is likely in wait-and-see mode having just expanded stimulus while the latter probably feels little urgency to act having seen regional financial conditions normalize since the Brexit referendum outcome.

Asia Session

22:00NZDANZ Job Advertisements (MoM) (JUL)1.4%-0.5%
23:50JPYTrade Balance (JUL)¥513.5b¥273.2b¥693.1b
23:50JPYTrade Balance Adjusted (JUL)¥317.6b¥167.7b¥335.0b
23:50JPYExports (YoY) (JUL)-14.0%-13.7-7.4
23:50JPYImports (YoY) (JUL)-24.7%-20-18.8
01:00NZDANZ Consumer Confidence Index (AUG)117.7-118.2
01:00NZDANZ Consumer Confidence (MoM) (AUG)-0.4%--0.6%
01:30CNYChina July Property Prices ---
01:30AUDEmployment Change (JUL)26.2k10.0k10.8k
01:30AUDUnemployment Rate (JUL)5.7%5.8%5.8%
01:30AUDFull Time Employment Change (JUL)-45.4k-44.0k
01:30AUDPart Time Employment Change (JUL)71.6k--33.2k
01:30AUDParticipation Rate (JUL)64.9%64.9%64.9%
01:30AUDRBA FX Transactions Government (JUL)-463m--1731m
01:30AUDRBA FX Transactions Market (JUL)444m-1720m
01:30AUDRBA FX Transactions Other (JUL)48m-36m
06:00JPYMachine Tool Orders (YoY) (JUL F) -19.7%--19.6%

European Session

08:00EUREurozone ECB Current Account SA (JUN)-30.8bLow
08:00EUREurozone Current Account NSA (JUN)-15.4bLow
08:30GBPRetail Sales Ex Auto Fuel (MoM) (JUL)0.3%-0.9%Medium
08:30GBPRetail Sales Ex Auto Fuel (YoY) (JUL)3.9%3.9%Medium
08:30GBPRetail Sales Inc Auto Fuel (MoM) (JUL)0.1%-0.9%Medium
08:30GBPRetail Sales Inc Auto Fuel (YoY) (JUL)4.2%4.3%Medium
09:00EUREurozone Construction Output (MoM) (JUN)--0.5%Low
09:00EUREurozone Construction Output (YoY) (JUN)--0.8%Low
09:00EUREurozone CPI (MoM) (JUL)-0.5%0.2%Medium
09:00EUREurozone CPI (YoY) (JUL F) 0.2%0.1%Medium
09:00EUREurozone CPI Core (YoY) (JUL F) 0.9%0.9%Medium
11:30EURECB account of the monetary policy meeting --Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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