Euro and Yen Straddle the Line

An upbeat US manufacturing report boosted the dollar but the market was hesitant to push its luck. The Australian dollar was the top performer while the yen lagged. The Asia-Pacific calendar features the second reading Aussie Q2 GDP.

The ISM manufacturing index was the first release in a big week of economic data. The survey rose to 55.7 compared to 54.0 in the best reading since mid-2011. The new orders reading also jumped to 63.2 from 58.3 and leaves market watchers puzzled about the direction of investment. Just last week, durable goods orders were extremely disappointing.

In any case, every drop in the bucket makes it more likely the Fed will taper on Sept 18 and that's good news for the US dollar, which kicked higher after the numbers. The moves were limited by technical levels as USD/JPY stalled ahead of 100 and EUR/USD found buyers ahead of the 200-day moving average. Both pairs were somewhat stretched after substantial moves than began last week.

If the data continues to point in the same direction, look for those levels to break but Tuesday's reaction shows the market is growing hesitant to buy dollars ahead of the Fed, or at least Friday's non-farm payrolls report.

Gold was also in the spotlight as it rebounded from $1385 to $1415. As we have frequently highlighted, September is the best month for gold, historically. Fund buying was the likely culprit for the gains.

The focus now shifts to the Australian dollar. The neutral bias in the RBA decision gave the Aussie a boost and today's GDP numbers are likely an afterthought but still worth watching. They will be released at 0130 GMT and are expected to show 2.4% annualized growth in Q2.