Intraday Market Thoughts

Risk Rebound Continues, RBA Minutes Could Boost AUD

by Adam Button
Aug 15, 2011 23:20

Risk assets gained for the third consecutive session on Monday on M&A news and talk of further Fed action. EUR led followed closely by AUD; CHF was the laggard. The Aug 2 RBA minutes are the key event of the upcoming session. TICS data weighing on USD. Ashraf's Premium trades from the Intermarket Insights will be posted shortly after this IMT.

The relief rally continued Monday in stocks and FX followed a similar path. The S&P 500 gained 2% to close at 1203. The rally was pinned on mergers after Google bought Motorola Mobility and Bank of America sold assets to TD Bank.

Asian and European trading focused on EUR and CHF but shifted to risk assets in New York. After brushing up against 0.8000 early in European trading, USD/CHF tracked lower for the rest of the session and closed far from the highs at 0.7840. EUR/USD rallied to the highest since July 27 late in Europe but flattened out in US trading.

Economic data was second tier and downbeat. The Empire Fed fell to -7.7 from -3.8; an improvement to -0.4 was expected. The NAHB housing survey remained at 15, as expected.

TIC data on capital flows into the US showed foreigners buying just $3.7 billion in long-term US assets in June, far below the $24.2 billion in May and the $30.1 billion expected. Funds appeared to be doing the selling as it was concentrated in Caribbean tax havens. Its far too early to make any broad generalizations but this data point certainly raises the stakes for the July report, which will show the impact of debt ceiling negotiations and the August report, which will show the impacts of S&Ps downgrade.

Gold and silver made a runs higher in North American trading, in part due to comments from Atlanta Fed President Lockhart (voter in 2012) who said there is plenty the Fed can do if the economy slows. I can assure you the Federal Reserve is not out of bullets, he said.

RBA Minutes Upcoming

The lone data point on the Asia-Pacific calendar is the 0130 GMT release of the RBA minutes from Aug 2. In the statement on Aug. 2, the RBA said it was holding, in part due to the acute sense of uncertainty in global financial markets over recent weeks. That comment proved wise as it came BEFORE a 200 point drop in the S&P 500. When the minutes of the prior RBA meeting were released on July 18, they gave AUD a boost. We can envision a similar scenario here if the RBA highlights the strength of the domestic economy or if the minutes highlight a lively debate about potential hikes because of high Q2 CPI (+3.6% y/y versus +3.3% in Q1).


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