The U.S. dollar and Japanese yen are losing ground to the other major currencies and most of the emerging market currencies here at the start of the week. Even against the yen, the dollar has softened. It had opened to higher in Asia and briefly traded above JPY100 as the market responded initially to the news that Japan was awarded the 2020 Olympics. The greenback has been trending lower since and is approaching initial support near JPY99.20-30 in the European morning.
Encouraged by the recovery before the weekend from the test on the $1.3100 area and news that the Sentix measure of euro area investor confidence soared to a 2-year high (6.5 from -4.9 in August) helped lift the euro through the pre-weekend high. A proper test on last week's highs (~$1.3225) appears to be waiting for North American participation.
Sterling is firm just below the pre-weekend high. Comments by Osborne that the U.K. economy "has turned the corner" and BOE's Fisher apparently giving up his call for additional QE has helped underpin sterling. Last month's high near $1.5720 and the June high near $1.5750 are the next targets, which may be approached but might need strong employment data on Wednesday to convincingly break.
The Australian dollar is edging out sterling as the strongest of the major currencies. The Australian dollar rose to new three week highs (~$0.9225) as the market responded favorably to new of the Liberal/National electoral victory. However, subsequently, concern that the Labor/Greens can frustrate the new government through their control of the Senate appears to be tempering the enthusiasm a bit. Initial support is now seen in the $0.9160-80 area.
The main economic news came from Japan with the Q2 GDP revised higher, following the recent better than expected capex report and the July current account. Japan's Q2 GDP now stands at 0.9% rather than 0.6%, for an annualized rate 3.8%, up from 2.6%. Separately, while Japanese trade balance deteriorated in July to JPY943.3 bln, it was blunted by a surge in the investment income balance (to JPY1.793 trillion from JPY672 bln in June and JPY1.44 trillion a year ago). This produced a current account surplus of JPY577.3 bln or JP333.7 bln on a seasonally adjusted basis. It is the sixth consecutive current account surplus, though the smallest over that period (on a seasonally adjusted balance).
The stronger GDP figures makes the retail sales tax hike even more likely to be implemented at the start of the new fiscal year, though an official decision may still be a few weeks away. Still the BOJ and the economic and finance ministries seemed to in favor. While there are expectations that the BOJ could provide some additional monetary stimulus to offset the impact, fiscal policy will also used. Economic Minister Amari has suggested a JPY2 trillion extra budget to mitigate the immediate economic impact.
Following news of stronger exports (and a larger than expected trade surplus), China reported inflation figures in line with expectations. Consumer prices rose 2.6% from a year ago. This is mostly a food story. Food prices rose 4.7% from a year ago, down from 5.0% in July. Non-food inflation stood at 1.5% (down from 1.6%), while producer prices fell 1.6% from a year ago.
Growing confidence that the Chinese economy is stabilizing helped the Shanghai Composite rise by 3.4%, the largest advance this year. Financial companies led the way, with a 6.7% surge amid reports suggesting that banks may be allowed to issue preferred shares to boost capital. The Shanghai Composite is now up 13% since the late June low. Tomorrow, China is expected to report industrial production, retail sales and fixed investment.
U.S. July consumer credit will be released late in the day and tends not to be a market-mover. The most important report this week is the August retail sales report at the end of the week. Canada reports July building permits today amid a relative quiet week for data. Watch the U.S. uptrend line off the mid-May, late July and mid-August lows, which comes in near CAD1.3050 today.