USD extended Friday's losses on a thin trading day, the DXY index was down 0.5%; European currencies continued to benefit; NZDUSD trades at the top of its 30 point range; gold up more than 1.5%

By Doug Steel

The USD remains under downward pressure during still thin trading in the Northern Hemisphere summer. Gold prices lift, while oil slips. Equities and bond yields are marginally lower.

Another slow news day, but the USD remains on the backfoot, extending last Friday’s losses after the Central Bank symposium at Jackson Hole. The DXY US Dollar Index has lost another 0.5% overnight. At 92.2, it is getting that much closer to a key downside technical level just under 92 that, if broken, could see a further marked move downward. USD selling has been broad-based with no obvious drivers, but uncertainty around the NAFTA negotiations and impending US debt ceiling continue to do the greenback no favours.

European currencies continue to benefit. The EUR has pushed firmly higher, consolidating just under the 1.20 mark. EUR is up 0.4% on the day, opening this morning around 1.1970. GBP/USD is also up 0.4% at 1.2930.

The NZD was again largely a bystander in a low news session. NZD/USD trades near the top of its tight circa 30pip overnight range, up 0.2% at around 0.7260. Unsurprisingly, there was no reaction yesterday to Fonterra reporting its July milk collection was up 5.4% on a year earlier. Very little milk is made in NZ during winter. Spring production will be of a little more interest, as Fonterra noted conditions are currently challenging on-farm after continued wet weather.

AUD/USD was listless before a strong surge in gold prices overnight added some support. Gold prices lifted more than 1.5%, on no news other than a softening USD. Gold is on track to close above US$1,300/oz for the first time this year. AUD/USD is up 0.4% at around 0.7960. This saw NZD/AUD continue to slide lower, easing 0.2% to currently sit around 0.9110. The pair is now not far from its year to date lows set back in March at just over 0.9070.

Hurricane Harvey continues to cause severe flooding across the Texas. The damage will take years to clean up. But while it will significantly dent activity in Texas, it is unlikely to cause material economic disruption across the US economy as a whole. Former Fed governor, Mark Olson, who dissented against an interest rate hike in 2005 to see if damage from Hurricane Katrina would hit the national economy, said ‘the devastation is significant, but it is localised.’ The event is not expected to change the Fed’s policy plans. There is unlikely to be major disruption to US crude oil production, with offshore production already restarting. Oil prices have dropped overnight, with West Texas Intermediate prices are down more than 2%, while Brent Crude is nearly 1% lower.

The US trade balance for July was the only data of any significance released overnight. The deficit widened to $65.1b from $64b in June. This was a little wider than the $64.5b expected, but the deficit was smaller than the Q2 average suggesting trade could still make a positive contribution to Q3 economic growth. The data did nothing to arrest the downward pressure on the USD.

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