Daily Report: Sentiments Lifted by China Data, Aussie Soars on GDP

Dollar and yen are mildly softer today as sentiments are lifted mildly by solid manufacturing data from China. PMI manufacturing rose slightly more than expected to 51.7 in August while HSBC manufacturing PMI also rose back above 50 to 51.9. Asian equities are generally higher with Nikkei up more than 1%. Australian dollar and the Australian all ordinaries index are both particularly strong as boosted by strong GDP data. Q2 GDP rose 1.2% qoq, 3.3% yoy, easily beat expectation of 0.9% qoq, 2.8% yoy.

 

While Chairman Ben Bernanke said last week at the Jackson Hole conference that the Fed outlined several stimulus measures boost recovery and fight deflation, minutes for the August meeting unveiled that it will be far more difficult in execution that expected as Committee members do not appeared to be ready to enter into QE2. More surprisingly, the minutes stated that 'no member saw an appreciable risk of deflation'. This is in contrast with what we perceived over the past few weeks. More in No FOMC Member Sees Deflation Risks, Reinvestment For MBS Proceeds Mainly For Keeping Balance Sheet Stable.

 

Looking ahead, some many important economic data will be released today and be prepared for some volatility. Swiss SVME PMI is expected to drop slightly to 65.8 in August. Eurozone PMI manufacturing final is expected to be unrevised at 55 in August. Sterling PMI manufacturing is expected to drop slightly to 57. Note that sterling is the weakest European majors this week so far and any downside surprise today will likely send EUR/GBP further higher.

From US, Challenger job cuts and ADP employment change will be released today. ADP is expected to report 20k expansion in the private job market in August. ISM manufacturing index is expected to continue the fall from April's 60.4 and drops further from 55.5 to 53 in August. Construction spending is expected to drop by -0.5% mom in July.

 

An interesting development this week is the divergence in the fortune of Aussie and other commodity currencies on respective fundamental outlook. AUD/NZD jumps sharply to as high as 1.2814 so far today to extend the whole rise from 1.2090. We'll stay bullish in the cross and anticipate further rally to 1.3 psychological level and above.

AUD/CAD is also sharply higher this week and reaches as high as 0.9574 so far today. Current rise from 0.8576 is viewed as resumption of resumption of the whole medium term rise from 2008 low of 0.7164 and further rise is expected in medium term to 0.9912 high.

Daily Pivots: (S1) 1.0595; (P) 1.0633; (R1) 1.0693; More.

USD/CAD jumps to as high as 1.0671 but retreats mildly ahead of 1.0675 resistance. Intraday bias remains cautiously on the upside for the moment. Decisive break of 1.0675 resistance will further affirm our bullish view that medium term rebound is resuming and should target another high above 1.0851. On the downside, though, below 1.0573 minor support will suggests that more sideway trading would be seen first, with risk of another test of 1.0470 before recent rise resumes. Though, downside is still expected to be contained well above 1.0246 support in such case.

 

In the bigger picture, USD/CAD broke out of recent converging range, which suggests that rise from 0.9929 is possibly resuming. Break of 1.0675 will further affirm this bullish case and target 1.0851 and above. Also, note that this will also affirm the case that whole medium term fall from 1.3063 is completed and will target 38.2% retracement of 1.3063 to 0.9929 at 1.1126 at least, with prospect of extending further to 61.8% retracement of 1.1866. We'll favor this bullish case as long as 1.0246 support holds.