The dollar extended its losses against a basket of major currencies during the European session as US markets returned from holidays, pricing the heightened geopolitical risks as well as the dovish comments from the Fed’s Lael Brainard. While the dollar was losing ground, the aussie and its cousin the kiwi hit fresh highs after the RBA governor Philip Lowe supported that the current monetary policy is appropriate given the risks of the already overloaded household debt.
Geopolitical risks continued weighing heavily on the markets as the latest news indicated that the US president agreed to provide financial support of billions of dollars for new weapon sales to South Korea. Meanwhile, the US ambassador to the United Nations argued for more sanctions against the North Korean regime. This came after the South Korean Business Daily reported that Pyongyang was planning to fire an intercontinental ballistic missile (ICBM), as suspicious moves of a rocket described as an ICBM towards the west coast of North Korea, were observed early today.
Besides that, dovish comments from Lael Brainard – a Fed Board of Governors member – on Tuesday added to the dollar’s losses. Brainard, a permanent voter, said in her speech in New York that Fed policymakers should be cautious on monetary policy tightening as this should be done only if inflation shows clear signs of heading towards the Fed’s target of 2%.
In terms of data, US factory orders released in late European session failed to give support to the dollar. As expected, factory orders for the month of July declined by 3.3% m/m compared to a growth of 3.2% seen in June, which was upwardly revised from 3.0%.
While investors were giving up riskier assets, the dollar index dropped to an intra-day low of 92.21, while the safe-haven yen gained on increasing demand. Dollar/yen fell to a one-week low of 108.98, down by 0.67% during the day.
The euro edged higher to $1.1928 on the back of a weaker dollar, before the European markets’ close. Previously the common currency was trending lower as Markit composite PMI readings for the month of August and July’s retail sales moderated. Moreover, investors will be focused for hints on the ECB’s monetary policy on Thursday when the central bank will complete its two-day policy meeting.
Pound/dollar jumped above the 1.30 key level, gaining on the back of a weaker dollar despite service PMI readings published earlier came in disappointing.
In Australia, RBA Chief Philip Lowe, following the central bank’s decision to keep cash rates unchanged at their record lows of 1.5% early in the Asian trading, claimed that the current monetary policy is "appropriate" as this strategy balances the risks of a rising household debt which fluctuates at high levels. Moreover, the central banker argued that the status of the Australian economy is far away from that under full employment conditions, while inflation is pressured below the mid-point of the target range of 2-3%. However, the monetary statement revealed that the RBA maintains its positive view on the country’s economic outlook.
The aussie surged to a one-month high of $0.8027 before it slipped to $0.8017 in late European trading, while the kiwi which is positively correlated with its Australian cousin reversed the previous week’s losses, climbing to $0.7251.
The commodity-linked loonie remained in an uptrend relative to the greenback, approaching the 2 ½-year high reached on September 1, ahead of the Bank of Canada’s policy meeting tomorrow, where investors project the BOC to hold rates unchanged. Dollar/loonie was trading 0.60% lower in the day at 1.2342.
In commodities, oil extended its recovery. WTI was trading at $48.76 a barrel during afternoon European trading hours, up 3.1% on the day. Brent was at $53.43, rising by 2.1%. Gold was 0.2% up and close to the $1,337 an ounce level. Yesterday it rose to an 11-month high of $1,339.52, gaining on the back of geopolitical uncertainty.
