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September 2016

Fed’s beige book finds US election a concern

Published: Thursday 08 September 2016

  • Fed’s beige book finds US election a concern
  • Bank of Canada keeps interest rates on hold
  • The focus will be ECB press conference at 13:30 GMT
Overnight the Fed’s beige book, a snapshot of the general health of the US economy was released. Broadly speaking it showed an economy that is struggling to continue momentum with many citing uncertainty over the US election in November as a new concern for holding back with investment. Comments from Fed speakers this week have been consistent with resuming the rate hike process sooner rather than later although with the data becoming more mixed,  markets are reluctant to aggressively price in imminent rate hikes. The pre-FOMC blackout begins next Tuesday so traders will be watching for any clues from speeches and interviews due over the next few days. For now the US Dollar should remain range bound.
The Australian Dollar rose a touch overnight as trade data showed that the trade deficit had narrowed sharply. Figures showed that the deficit in July fell by 26% to AUD 840 million against an expectation of AUD 2.8 billion. The largest contribution came from gold exports which is always volatile. Elsewhere, the news was not so good with iron ore and coal exports both falling.  Traders looked past the headline figure which probably explains the muted reaction. Yesterday the Bank of Canada kept interest rates on hold at 0.5%. Governor Stephen Polz said that underlying economic conditions don't warrant a change in policy at this time and stood firm with the BoC's decision. 
The highlight of the day will be the European Central Bank meeting and the market is anticipating some form of extension of quantitative easing. There has been some chatter around an expansion in the type of bonds that they would be able to purchase. They may also be tempted to extend the end date by another six months to September 2017. Some form of easing is expected so it would be a surprise if they did nothing and the Euro could find some support. Unless something radical is announced, it is unlikely that we will see a breakout form the summer range in EURUSD of 1.10 – 1.1370.
The ECB will undoubtedly be the focus this afternoon however if that passes without incident, attention will once again turn to the US and interest rate hike expectations. 

Modern Proverbs

Thou shalt not weigh more than the refrigerator
A clear conscience is usually the sign of a bad memory
Always yield of temptation, because it may not pass your way again
A balanced diet is a cookie in each hand

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
CAD 13:30 Canada: Building permits m/m -5.5% 3.2%
CAD 13:30 Canada:NHPI m/m 0.1% 0.2%
CAD 13:30 Canada: Capacity utilization rate  81.4% 81.5%
EUR 13:30 ECB press conference    
USD 13:30 US: Unemployment claims 263k 264k
USD 16:00 US: Crude oil inventories 2.3m 0.6m

FX research by Ricky Nelson

Daily Currency Analysis by William Busby

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