Daily Market Report 22/08/2013

The big risk event of yesterday saw the release of the minutes from the latest Federal Open Market Committee meeting reveal broad support for a reduction in quantitative easing later this year as long as the economy continues to improve.

Despite 68% of 48 economists in a latest Bloomberg survey still thinking that the Fed will reduce QE in September; there was a lack of clarity by the Fed in the minutes to suggest the precise timing of when tapering was likely to occur. So whilst the US dollar gained following the news, further gains could well be limited until further information is provided to the markets as to the timing and extent of their tapering plan. But saying this it does appear, at the moment, that that all the pieces of the puzzle are slowly being put together for the Fed to take action in the near future.

The US dollar did receive some good news earlier in the afternoon as the number of existing home sales increased from 5.06mln to 5.39mln in July.

Whilst investors are seemingly looking for further clarification before driving the US dollar higher, the sheer threat of tapering is causing investors to drive emerging markets currencies such as the Indian rupee and Thai Baht even lower.

In particular, the Indian rupee fell to an all time low against the pound; this despite the Reserve Bank of India intervening in the markets to halt the demise of the rupee and technical indicators suggesting that the currency is oversold. Whilst the threat of tapering in the US still lingers, investors will remain worried how the nation can reduce its record current account deficit, and thus we could well see further weakness in the rupee.

Overnight we saw China announce some good news with PMI manufacturing rising to a four month high and expanding in August. The data gave the Australian dollar’s recent weakness a bit of relief; but indications are still for the Australian dollar to continue to weaken, given the recent minutes meeting where the Reserve Bank of Australian indicated that further rate cuts could well occur.

The euro has been boosted this morning as manufacturing and services PMI figures from German and the euro zone as a whole surpassed expectation and expanded even further in August, adding to the recent run of good results from the euro zone.

This afternoon, the US will come into focus with initial jobless claims figures, manufacturing PMI figures and data relating to house prices in the US.

Key Announcements:

13.30pm – CAD – Retail Sales (Jun): Expected to fall to 0.3%.

13.30pm – USD – Initial Jobless Claims: Expected to have increased to 322,000.

13.58pm – USD – Markit Manufacturing PMI (Aug): Expected to improve to 53.8.

14.00pm – USD – Housing Price Index (Jul): Previously showed a rise of 0.7%.