Australian dollar coin
A one Australian dollar coin is seen in this picture illustration taken in Sydney, Australia, July 29, 2015. Reuters/David Gray

Bell FX Currency Outlook: The Australian Dollar is lower thismorning, following comments from Federal Reserve’s William Dudley, regarding this week’s volatility in share markets and issues emanating from China’s economy.

Australia: William Dudley, head of the New York Federal Reserve Bank and a voting member of the rate-setting FOMC, said China’s slowdown has eroded the argument for raising interest rates in September when hestated that recent developments made the case for a September hike “less compelling”. With better sentiment in overnight markets, a more positivesession for China will calm nerves. However, that is not assured. The US data tonight will continue to inform the Fed, while in Australia the CAPEX outlook will be of interest. With investors not convinced that China's stimulus measures will rejuvenate demand, commodities are likely toremain under pressure. As sentiment improved in equity markets, the FX market switched focus and better US data supported the USD across theboard. Low yielders sold off most heavily, however the AUD and NZD were also weaker. This price action highlights the resilience of the USD against commodity currencies in a number of different market environments. This also highlights the breadth of drivers for further downside in the AUD. Assuming calmer waters manifest in the Chinese markets today, investors will focus on the Australian CAPEX outlook. Should this drive a rally in the AUD, resistance will be apparent one would suspect.

Majors: The EUR plunged back into its range last night, driven by USdata. The next driver will be European M3 money supply tonight, with the message clear from the ECB that they will do ‘whatever it takes’ to support money supply growth. The Bank of Japan is not making much progress on their 2% inflation target at present, and we get an update on the BoJ’s thinking today. GBP followed EUR in plunging last night, but the data was actually pretty positive, with loans for housing and sales reporting above expectations. The GBP economy is still performing well. However, therecent “rout in equities” is a huge worry. There has been a degree of decoupling in recent days between China’s equities, which fell again overnight (more modestly) despite the PBoC’s easing actions, and global equities. Equity markets are fighting back, but are not yet all that far off their lows. Volatility is now markedly higher and is likely to stay that way over the coming months as nervous traders react (and overreact) to news, particularly relating to the Fed and China.

Economic Calendar 27 AUG

  • AU Private Capital Expenditure
  • US GDP Price Index
  • US Initial Jobless Claims

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