The G-10 rundown
USD – again, not seeing anything in Powell’s speech to deserve a sustained USD weakening, but if animal spirits feel comfortable with putting back on the Goldilocks trade (happy days for risk as the Fed outlook is not going anywhere and China is going to keep the CNY floor in place), then the USD weakness could extend a bit.
EUR – the rally looks over-enthusiastic at these levels but this latest rally in EURUSD has disrupted the bearish case even if the pair remains rangebound for now. Have a hard time conjuring positive catalysts for Europe at the moment, with the next test perhaps over Italy’s budget intentions in the coming weeks.
JPY – the yen has weakened as the EM currencies got a shot in the arm on China’s move to keep the floor under the renminbi and on the rebound in global risk appetite, led by Asia. The high beta for JPY is in the risk/JPY crosses. Would be surprised if the current risk rally can find legs beyond the near term, given uncertainties ahead.
GBP – sterling slipping to new lows versus the euro providing some ominous background music but at these levels above 0.9000 we may need to see real developments or signs that no-deal odds are escalating to continue to drive weakness.
CHF – EURCHF has rebounded in sympathy with the broadly stronger euro – will be surprised if 1.1500+ is achievable unless Italy’s yield spreads to the core are crushed as the populist government makes nice (not likely).
AUD – the Aussie recovering as a new prime minister named but more importantly on China’s move to shore up the renminbi, but the Aussie still looks like a weak link on long-term fundamentals, with short term upside risks on any sustained return of the Goldilocks trade and from the risk of a squeeze on the rather aggressive speculative short position.
CAD – a possible breakthrough on NAFTA on the way, but hard to detect this in USDCAD at the moment, which continues to find support ahead of the pivotal 1.3000 area. The latest Canada GDP figure is up on Thursday.
NZD – AUDNZD back below 1.1000 as bulls are left twisting in the wind. Still don’t like NZD as long as uber-dove Orr is at the helm of the RBNZ.
NOK – the krone’s travails are remarkable, given the rebound in risk appetite and a fresh surge in oil prices – have a hard time seeing why EURNOK should push any higher or have a go at 10.00, but the lack of a pulse in NOK given the backdrop is unsettling.
SEK – nerves clearly on show ahead of the September 9 election. Even if the centre barely holds, SEK may prove too cheap, as it is difficult to see how the election results in dramatic new policy swings that affect capital flows or the economy.