Summary:
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The USD is looking to end a good month on the front foot
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The buck is higher against vast majority of peers in August
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Chicago PMI (63.6 vs 63.0) and UoM 96.2 vs 95.5) beat forecasts
Looking at the heatmap on xStation we can see that the US dollar is fairly mixed on the day, with the greenback little changed against most of its peers, with emerging market currencies such as the BRL and TRY looking to recover from yesterday’s losses while the AUD and CAD are the two biggest losers vs the buck.
The USD is having a fairly mixed day at the end of the month. Earlier on the buck was rising but now it has fallen back a little to trade little changed against most of its peers. Source: xStation
Seeing as today is month-end it’s looking like it’s going to be another good month of gains for the US dollar with a trade-weighted index on course for a 5th consecutive monthly gain. Having said that however, some of the gains from earlier on this month have been handed back and while it may not yet be clear that the buck has turned lower, it has certainly lost some of its upwards momentum. The biggest losers in August against the buck are the TRY (-24%), ZAR (-9.8%) and BRL (-8.9%).
For the month of August the USD has gained against most of its peers, with the largest rise seen vs EM currencies - TRY, ZAR and BRL. The only two currencies that have outperformed the USD are the CHF and JPY which isn’t too surprising given their safe-haven characteristics and the EM concerns of late. Is this a possible warning sign for stocks as they continue to rally? Source: xStation
This is not too surprising given the emerging market concerns we’ve had in recent weeks. If we look at the gainers against the buck, just the CHF (+2.4%) and JPY (+0.7%) are higher on the month. Why this is particularly noteworthy is because both the CHF and JPY are renowned as safe-haven currencies and therefore outperformance in them has historically been associated with risk-off moves. Given this, if we look across asset classes, to indices for instance, it is clear that the US benchmarks have continued to rally (as we noted here) despite this possible warning sign in FX and with a bearish engulfing candle on the US500 on D1 yesterday there is some suggestion that we could be in for a pullback.
In terms of economic releases there have been two second tier pieces of data from the US this afternoon, both better than forecast. First off we had the Chicago PMI for the month of August which came in at 63.6, down from 65.5 previously. However, given that this was expected to come in at 63.0 it still qualifies as a beat.
The Chicago PMI fell back lower in August, but it still beat expectations. What is more it continues to hold up pretty well compared to the ISM and Philadelphia equivalents and could be seen to suggest the manufacturing sector is holding up a little better than feared. Source: XTB Macrobond
The University of Michigan consumer sentiment is the last economic release of note and this also beat forecasts. A reading of 96.2 vs the 95.5 consensus forecast represents solid beat and while it was also a drop on the 97.9 prior it can be viewed favourably due to beating expectations. In addition the 1-year and 5-10 year inflation expectations also both rose from 2.9% to 3.0% for the former and 2.5% to 2.6% for the latter.
The latest UoM consumer expectations came in pretty much flat but the economic conditions declines. There remains a notable divergence between these two indicators. Source: XTB Macrobond
