Dollar Climbs, Retail Sales the Next Hurdle

A small relief rally boosted the dollar after relentless losses last week. Gold was also strong, climbing toward the July high while the Aussie lagged. The June BOJ minutes and Japanese machine orders are on the calendar in Asia.

A Fed study offered another hint that tapering is coming soon. A study from economists at the NY and SF Fed indicated the vast majority of stimulus since QE has been due to forward guidance rather than asset buying. If the FOMC believes the study it would give them another reason to taper in September as they look to mitigate financial risks.

The dollar could also benefit from better budget numbers in the US. The July deficit was $97.6 billion, which was slightly higher than estimates but the year-to-date deficit is at $607 billion compared to $974B at this time last year. The improving budget could ease rhetoric in Congress and help forge a budget deal – something that could pave the way for a strong year of US growth in 2014.

USD/JPY climbed above 97.00 early in Asia-Pacific trading after failed attempts at that level on Friday and Monday. Overall, market moves were limited to 50 pips on the day. The Australian dollar slipped back to 0.9140 despite chatter about Chinese stimulus. At this time of year, flows rather than fundamentals can take the drivers' seat.

The big mover to start the week was gold as it continued a week-long climb from $1272 to as high as $1343. The rally now closes in on the July high near $1350. That will be a key pivot in the days ahead.

The next times on the calendar are from Japan with the June machine orders report at 2350 GMT. Expectations are low with the consensus calling for a 7.0% m/m decline. Markets may be extra-sensitive to the data after yesterday's disappointing GDP numbers. At the same time, the BOJ releases the minutes of the June 10-11 meeting.