A quiet start to the week, with the USD reversing Friday’s declines and risk sentiment improving after last week’s sell-off.
Key US and European equity market indices are up around 1% and the VIX index is back down to 12.5, reversing some of last week’s price action. There have been no further developments on US-North Korea political tensions and traders have taken the opportunity to buy the dip.
The USD is in the driving seat, rising on all the major crosses and the various USD indices up about 0.3-0.4%, reversing Friday’s fall which followed soft CPI data. The currency got a little boost this morning after the Fed’s Dudley gave an interview to Associated Press. He kept alive the prospect of the Fed tightening further, saying that his outlook has “little changed since the year began”. He backs another rate hike this year if the economy evolves as expected and repeated that an announcement on the Fed’s balance sheet would be seen relatively soon.
The NZD sits this morning at 0.7290, down 0.3% from the close at the end of last week. Strong reported retail sales for Q2 had little sustained impact, as the figures were boosted by the Lions’ tour. US retail sales data due tonight will be more important than the local version. For the GDT dairy auction overnight, indicators look reasonably constructive following a small price dip at the previous event in early-August. Any push higher would add to the case for farmgate milk prices to be in the high $6s or early $7s this season.
With the USD in the driving seat, there has been little change in the crosses. The AUD has slightly underperformed, down 0.5% to 0.7850, helping NZD/AUD tick higher to 0.9280. The AUD has trended lower since the release of softer than expected China activity data, with retail sales, investment, and industrial production all underwhelming for July. This might also be behind a weaker commodity price dynamic, alongside the stronger USD. Oil prices are down about 2½%.
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