Japanese Yen Gains on Safe-Haven Demand

Daily Analysis - 05/07/2017

Tensions on the Korean Peninsula Spook Investors

The Yen climbed against the US dollar on Wednesday amid growing tensions between the United States and North Korea. Risk sentiment was curbed during the low-volume holiday session, which saw investors flock to the relative safety of the Japanese currency.

UN Security Council to Discuss Korean Issue

North Korea reportedly tested a newly developed intercontinental ballistic missile, capable of carrying a large and heavy nuclear warhead. Washington immediately lodged a protest and called for unified global action to hold Pyongyang and Kim Jong-un accountable for North Korea’s ongoing pursuit of nuclear weapons. The United States has called for an emergency meeting of the United Nation’s Security Council to discuss the looming threat.

A closed-door session of the 15-country forum is expected to occur later during Wednesday’s session. USDJPY was last seen around the 113.200-mark, with further downside possible should the climbing geopolitical risks heighten demand for risk-aversion assets. USDJPY has found resistance around 113.500, a failure to break above this level could see the pair slide all the way to 111.600.

UK Construction Activity Tapers

After a strong showing post-referendum, growth in the UK construction sector slowed in June as a combination of political turbulence and concerns about the economic outlook hampered new orders. The Markit/CIPS UK Construction Purchasing Managers’ Index slid to 54.8 from the 18-month high of 56.0 recorded in May, missing the consensus of economists anticipating a figure of around 55.0. Markit further said that optimism about growth in construction over the next one year slipped to a four-month low.

The survey data comes close on the heels of a manufacturing sector report that came in well below forecasts. The Bank of England is considering whether to lift interest rates for the first time in a decade, as it watches for signs of growth in other key areas that can offset a slowdown in consumer spending. EURGBP is largely unchanged early Wednesday to last trade around 0.8785.

China Services Sector Loses Steam

Signalling renewed pressure on the sector after a pickup in May, Chinese services firms grew at a reduced pace in June according to a private business survey released overnight. The Caixin/Markit services PMI fell to 51.6 last month from 52.8 in May, when an unexpected rebound halted four straight months of declines. Subdued demand saw the new business sub-index slip to 51.9 from May's 53.5, hitting its lowest level since May 2016.

The data reinforced analyst views that the world's second-biggest economy was cooling following a strong start to the year, as Beijing clamps down on easy credit to arrest a huge build-up in debt. USDCNH slumped in early Wednesday trade but is off the lows of the session to currently trade around the 6.7955-mark.

Canada Manufacturing Growth Slows

Following the more hawkish stance exhibited by Bank of Canada Governor Stephen Poloz last week, a disappointing manufacturing print may lower the likelihood of July action. Activity in Canada’s manufacturing sector cooled to a four-month low in June after companies received fewer orders for new work per data released late Tuesday. The Markit Canada Manufacturing PMI came in at a seasonally adjusted 54.7 last month compared to 55.1 in May.

The gauge of new orders fell to 55.1 in June from May’s 55.7, its lowest reading since January, hurt by weakened domestic demand. While the latest figures point to a waning in manufacturing momentum, Markit noted that firms remained upbeat about the outlook for the coming 12-months. EURCAD hit a two-month low after the data was released, with the pair mounting a weak bounce to last trade around 1.4695.