US Dollar holds firm on risk aversion and US figures; China trade data next

During the Asian session, the focus will be on trade data from Australia and China. Additionally, New Zealand will report Q2 Manufacturing Sales. RBA Governor Lowe will deliver a speech. Japan is set to release the preliminary Leading Economic Index for July. Later in the day, the US will release the weekly Jobless Claims report.

Here is what you need to know on Thursday, September 7:

The US Dollar remains resilient amid growth divergence with China and Europe, and expectations that the Federal Reserve will have to hold interest rates above 5% for a longer period of time. The US Dollar Index rose marginally by 0.05% to peak above 105.00 after the US ISM Services PMI surpassed expectations, but then pulled back. US Treasury yields also rose, further supporting the US Dollar, with the 10-year yield climbing to 4.30%.

Risk aversion remains present as US stocks slide again, with the Dow Jones losing 0.57% and the Nasdaq falling by 1.05%. During the Asian session, market participants will closely monitor Chinese trade data. Positive numbers would alleviate concerns about the current state of the Chinese economy.

EUR/USD reached fresh monthly lows but managed to remain above 1.0700. It finished flat after a timid recovery. Eurostat will release a new estimate of Q2 employment and GDP. Germany will report July Industrial Production.

Jan von Gerich, Chief Analyst at Nordea Research on next week’s European Central Bank meeting: 

The ECB is torn between whether to hike rates again or not next week. We think the Governing Council will pause, but signal preparedness to do more at upcoming meetings, if needed. Both inflation and growth forecasts could see downward revisions.

GBP/USD fell to as low as 1.2481, the lowest level in three months, and then rebounded to 1.2500. The pair continues to move with a bearish bias, with the 200-day Simple Moving Average (SMA) at 1.2430 in sight. The Pound was among the worst performers, weakened after comments from Bank of England officials.

USD/JPY remains at its highest level since November, trading above 147.50, and has put the market on alert for a potential intervention by Japanese authorities. So far, it has been limited to verbal intervention.

The Australian economy slowed less than expected during the second quarter, showing a 0.4% expansion, which was above the market consensus of 0.3%. Additionally, Q1 figures were revised higher. Despite the positive outcome, the Australian Dollar remained unaffected. AUD/USD finished flat after a sharp fall on Tuesday, with the pair consolidating between 0.6355 and 0.6400. On Thursday, Australian trade data is due, but more importantly, Chinese trade figures. 

NZD/USD failed to regain levels above 0.5900 and tested the 0.5870 area. The Kiwi remains under pressure amid risk aversion and a stronger US Dollar.

USD/CAD hit fresh monthly highs but then pulled back below 1.3650. The pair remains influenced by high crude oil prices. As expected, the Bank of Canada kept its key interest rates unchanged at 5%.

Analysts at CIBC on BoC:

Today’s decision was widely expected, particularly in the wake of the Q2 GDP data which even a hawkish central bank couldn’t ignore. We don’t see any reason for forecasters or investors to alter whatever views they had prior to today’s news.

The day after Russia and Saudi Arabia surprised the market by announcing an extension of voluntary oil production cuts, crude oil prices soared and rose again on Wednesday. The WTI barrel posted its highest close since November at $87.50.

Metals continue to decline. Gold dropped to $1,915, matching the 20-day SMA, and posted its lowest close in almost two weeks. Silver tested $23.00 and recorded its sixth consecutive decline; however, it finished slightly away from the lows.