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Daily Brief - 17/08/2018

London Office

 

British Pound

 

Reuters: Sterling languished near 14-month lows on Thursday, and strong British retail sales did little to support the currency hamstrung by fears about Britain leaving the European Union. Hot weather and the World Cup boosted retail sales in July but the pound remained flat against the dollar around the $1.27 level. A strong dollar and mounting fears that Britain will fail to secure an agreement before it leaves the EU in March have hurt the pound. It has shed 12 percent of its value since April and on Tuesday sank to $1.2662, its weakest since June 2017, falling against the dollar for a 12th straight day.

 

Few saw a Bank of England interest rate hike earlier this month as a vote of confidence in the economy, since Britain’s future, and access to European markets, remains in doubt. “Future interest rate rises now seem a distant prospect and Brexit continues to cause uncertainty... even this good economic performance is unlikely to translate into a lasting boost for sterling,” said Lee McDarby, an executive at currency brokers Moneycorp. Against a surging euro, the pound traded broadly flat at 89.47 pence per euro.

 

US Dollar

 

Reuters: The dollar was little changed against other major currencies on Friday after nudging away from 13-1/2-month highs amid easing risk aversion and as investors awaited the next developments in the U.S.-China trade saga. The dollar index, a measure of the greenback’s strength against a basket of six major peers, was steady at 96.647. It had climbed to 96.984, its highest since late June 2017 on Wednesday during a week in which a plunge by the Turkish lira to record lows and concerns over China’s economic health hit emerging market currencies, driving up demand for the safe-haven greenback.

 

The dollar lost steam, however, after China and the United States agreed on Thursday to hold a new round of trade talks on Aug. 21-22, helping stem risk aversion in the broader markets. “The ‘risk on’ mood generated by news of the U.S.-China trade talks is weighing on the dollar, while prompting some buy backs of the euro, which has been hit earlier this week by Turkish concerns,” said Shin Kadota, senior strategist at Barclays in Tokyo. “Next week, the main focus will likely shift to U.S.-China trade issues from Turkey with the Chinese delegation visiting Washington and as $16 billion in new tariffs on Chinese good are due to take effect.”

 

South African Rand

 

BD Live: The rand staged a modest recovery in mid-morning, trade on Thursday, with sentiment around the local currency and broader emerging-market assets remaining fragile. The magnitude of the recent slide has raised inflation concerns, coming as concerns mount that the local economy possibly contracted in the second quarter. A contraction will mean that SA is in a technical recession, which is defined as two successive quarters of contraction. The scenario will punch holes in the "new dawn" narrative championed by President Cyril Ramaphosa. The rand is still down nearly 3% against the dollar, heading for a third consecutive weekly loss. While sustained rand weakness breeds inflation by pushing up the cost of imported goods, such as fertilisers in the case of agriculture, exporters tend to benefit from the weakness.

 

At the very least, the weaker rand cushions the struggling local platinum and gold industry against the low dollar-denominated platinum and gold prices. Earlier in the week, South African Reserve Bank deputy governor Daniel Mminele tempered expectations of a potential hike in interest rates in the near term, saying the Bank would be guided by evidence of the building inflationary pressures. Mminele’s comments on Monday came amid the tumult in the rand and other emerging-market currencies, including the Turkish lira and Indonesia’s rupiah. In an effort to defend the value of the rupiah, the Bank of Indonesia hiked interest rates on Wednesday — its fourth so far in 2018. "This volatility is unlikely to improve over the next couple of days; the market is still trading like a rat cornered by a snake," Standard Bank trader Warrick Butler said in an e-mailed note to clients. "We could easily see this wild currency back to [Wednesday’s] lows or highs just depending on headlines and what the market still makes of the [dollar] versus emerging markets. Flows are still erratic with no-one seemingly keen to commit to any positioning, and who can blame them?" The rand has suffered the collateral damage of poor sentiment towards emerging markets amid jitters over Turkish economic crisis. The higher US interest and the dollar has also hurt the rand. At 10.35am, the rand was at R14.4485 to the dollar, from R14.5693, at R16.4471 to the euro from R16.5314 and at R18.3890 to the pound from R18.5046.

 

Australian Dollar

 

Reuters: The dollar nudged up 0.1 percent to 110.99 yen, on track to end the week virtually flat. The Australian dollar edged down 0.1 percent to $0.7255 after Reserve Bank of Australia (RBA) Governor Philip Lowe said on Friday that interest rates will stay at record lows “for a while yet” as inflation remains lukewarm and there is still spare capacity in the labour market.

 

The Aussie had gained 0.3 percent the previous day following news of the new round of U.S.-China trade discussions.

Daily Brief - 17/08/2018

Hong Kong Office

 

British Pound

 

FXStreet: A quickly wave of USD selling emerged over the past hour or so, lifting the GBP/USD pair sharply higher to mid-1.2700s, or fresh session tops. The latest leg of sharp uptick lacked any obvious trigger and could be attributed to a follow-through US Dollar selling, in what could be categorized as a rather late reaction to today's worse than expected US economic data - housing starts and Philly Fed manufacturing index. Adding to this, some aggressive short-covering, especially after bulls showed remarkable resilience below the 1.2700 handle through the early North-American session, could also be one of the key factors providing an additional boost to the major.

 

The pair has now cleared an important barrier near the 1.2730-35 region, marking neck-line hurdle of an inverted head & shoulders - bullish reversal chart pattern formation on the 1-hourly chart. Hence, a follow-through up-move, led by some fresh technical buying, now looks a distinct possibility.

 

Immediate resistance is pegged near the 1.2765-70 region, above which the pair is likely to aim towards reclaiming the 1.2800 handle before eventually darting towards weekly tops, around the 1.2825-30 region. On the flip side, any meaningful retracement slide might continue to find immediate support near the 1.2700-1.2690 region, which if broken might turn the pair vulnerable to resume with its prior depreciating slide.

 

US Dollar

 

Reuters: The dollar was little changed against other major currencies on Friday after nudging away from 13-1/2-month highs amid easing risk aversion and as investors awaited the next developments in the U.S.-China trade saga. The dollar index, a measure of the greenback’s strength against a basket of six major peers, was steady at 96.647. It had climbed to 96.984, its highest since late June 2017 on Wednesday during a week in which a plunge by the Turkish lira to record lows and concerns over China’s economic health hit emerging market currencies, driving up demand for the safe-haven greenback.

 

“The ‘risk on’ mood generated by news of the U.S.-China trade talks is weighing on the dollar, while prompting some buy backs of the euro, which has been hit earlier this week by Turkish concerns,” said Shin Kadota, senior strategist at Barclays in Tokyo. “Next week, the main focus will likely shift to U.S.-China trade issues from Turkey with the Chinese delegation visiting Washington and as $16 billion in new tariffs on Chinese good are due to take effect.” On Aug. 23, $16 billion in new U.S. tariffs on Chinese goods take effect, along with an equal amount of retaliatory tariffs from Beijing. The offshore Chinese yuan was little changed at 6.87 per dollar. It had rallied more than 1 percent on Thursday in light of the U.S.-China trade talk news, pulled back from a 19-month trough of 6.9585 set midweek.

 

Australian Dollar

 

FXStreet: The AUD/USD caught a brief relief rally on Thursday, lifting into 0.7285 and clawing back much of the week's losses. The Aussie dipped into the 0.7200 technical barrier in the first half of the week, and despite yesterday's less-than-stellar employment report, the AUD/USD managed to scale back on the week's losses, but continued popularity in the USD sees the pair unlikely to maintain bullish momentum.

 

Friday sees a speech from the Reserve Bank of Australia's (RBA) Assistant Governor Luci Ellis at 07:30 GMT, though little of note is expected from the second-in-command, while the RBA's Governor Lowe will be giving his testimony before the House of Representatives' Standing Committee on Economics, where the governor is expected to continue towing the central bank's line of wait-and-see, with the RBA firmly entrenched in a trend of inaction, with the central bank recently 'celebrating' its anniversary of two straight years with no major policy adjustments.

 

Global Markets

 

Reuters: U.S. stocks and emerging market currencies rebounded on Thursday after China said it will hold trade talks with the United States this month and Turkey’s lira continued its recovery. China said that a delegation led by its vice commerce minister would travel to the United States for talks on Aug. 21 and 22, raising hopes that Beijing and Washington may resolve the escalating tariff war that has roiled financial markets since early March. 

 

MSCI’s index of world stocks rose 0.6 percent. Emerging market stocks dipped 0.2 percent a day after falling more than 20 percent from their January intraday high. The Shanghai Composite Index closed down 0.6 percent, while Hong Kong's Hang Seng index ended 0.8 percent lower. Hopes that China and the United States could ease trade tensions helped Chinese stocks pare losses. 

 

Copper rose 1.54 percent to $5,890.50 a tonne, after having confirmed a bear market on Wednesday when it closed 20.9 percent below its recent high reached on June 7.

 

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