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Research Market strategy
by Swissquote Analysts
Daily Market Brief

USD reverses gains, CNY loses ground

FX market is treading water as Fed members talk the US dollar down

By Arnaud Masset

It has been a slow start into the week so far with most currency pairs trading sideways. With the exception of the New Zealand dollar, which experienced a sell-off on Monday amid a drop in inflation expectations, most G10 currencies reversed Friday’s losses. The single currency bounced back to 1.1824 on Tuesday after dipping as low as 1.1728 last Friday. USD/JPY trimmed gains and stabilised at around 110.50, unable to gain upside momentum.

The dovish comments from two Fed members prevented the dollar to initiate a recovery. Both Bullard and Kashkari emphasized that the weak inflationary pressures were still a problem that cannot be solved by an improving job market. St. Louis Fed President Bullard declared that “the current level of the policy rate is likely to remain appropriate over the near term," and added that the weak inflation reading were concerning because it suggests this setback is not due to temporary factors.

The July inflation report is due for release on Friday. After the publication of a rather mixed personal expenditure indicator for June on August 1st, investors are impatiently awaiting for the July’s CPI figures. Economists have turned slightly more optimist with the headline gauge expected to come in at 1.8%y/y from 1.6% in June, while the core gauge should have remained flat at 1.7%.

Beside the July’s inflation report, it is going to be a slow week in term of economic data. It is however important to remember that the RBNZ is holding its August meeting tomorrow. A downside move in NZD/USD can therefore not be ruled out.

China: Exports suffered in July

By Yann Quelenn

China continues its transition from an economy driven mostly from manufacturing to an economy based on its domestic market. China’s economy is also a great barometer of the global economy and today’s China’s exports are a good illustration of it. The data have shown a decline in July way below consensus printing at 7.2% y/y versus 11% y/y expected. It is worth noting that there exists a strong seasonality of China’s exports which tend to slow down just after the summer before bouncing back towards the end of the year. This year, it seems that the slow down happens sooner than the years before.

Trade balance has increased in July above markets expectations at $46.7 billion vs $45 expected. This is mostly due to imports that keeps growing at a higher pace than exports. Imports came in at a strong 11% y/y in July, even though below expectations. Imports growth decelerates and we may believe that domestic demand is also cooling – slightly at the moment.

Currency-wise the USDCNH is now trading at its lowest levels since October 2016 at 6.7 Yuan against a single dollar note. China’s falling exports are also the sign that the global outlook does not seem so promising and this validates the China’s transition. USDCNH is set to weaken again.

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