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US Dollar Nears 1-Week Low

Daily Analysis - 16/05/2017

Greenback Bears Return on Softer Manufacturing Activity

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The US dollar is trading near a one-week low against a basket of major currencies, facing renewed pressure after a surprisingly tepid US manufacturing report indicated that current business conditions are quickly worsening as the optimism driven by stimulus hopes gradually fades.

Dollar Dip Preceded by Worsening US Manufacturing Data


After rising to the highest point since 2014, the New York Federal Reserve’s Empire State Manufacturing Index released which serves as a barometer for business activity in the state unexpectedly declined in May.  Apart from falling into negative territory for the first time since October of last year, sliding to -1.00 in May compared to the 5.20 reported a month earlier, the index underscores concern that the New York data could be a prelude to a further deterioration in the manufacturing space.

In the meantime, the US dollar has shed ground against major peers, falling against the Japanese Yen after climbing 0.40% on Monday and gaining close to 2.00% against the Yen this month on the back of improving risk sentiment. The Euro is also gaining ground, edging back above 1.1000 and currently perched just above the six-month high of 1.1020 set last week.

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US Home Builder Sentiment Improves


A widely-followed gauge of the US housing sector recorded an unexpected rise in May, as the existing supply of homes continued to remain tight. According to the National Association of Home Builders’ index of builder confidence, sentiment climbed to 70 from 68 in April, topping analysts’ projections of an unchanged reading during the month of May. The confidence gauge gathered momentum in November as builders bet on more sector-friendly policies from the new Trump administration.

The NAHB index is generally regarded as a proxy on US housing starts which is set to be unveiled later in the session. Current forecasts are anticipating that builders broke ground at an annualized pace of 1.260 million units last month. After gaining ground on Monday, Dow June futures are largely unchanged around 20927 in early Tuesday trade.

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Australia’s Central Bank Confirms Growth on Track


Despite the recent headwinds encountered by the economy, the Reserve Bank of Australia remains upbeat about the moderate economic growth experienced during the first quarter alongside a pick-up in core inflation. Minutes from the Central Bank’s May meeting released overnight reaffirmed the forecast of core inflation rising to around 2.00% by 2018. However, continued weakness in the labour market amid rising household debt forced the RBA to maintain the status quo on the policy front.

The RBA has now kept the benchmark interest rate at a record low of 1.50% for nine straight months.  In addition, the unemployment rate currently stands at a 13-month high of 5.90%, while gauges of underemployment are also close to all-time highs ahead of official labour data due later in the week. After reaching a one week high on Monday, AUDUSD is pulling back in early Tuesday trade, with the pair last seen around 0.7420.

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German DAX 30 Reaches New High


The benchmark DAX 30 managed to touch a new intraday record on Monday, carrying over the positive momentum into early Tuesday trade as investors eyed upbeat German election results and rallying crude oil prices. The DAX surged to 12,832.29 amid market relief following Chancellor Angela Merkel’s strong showing in a regional vote.

Merkel’s Christian Democratic Union secured a significant win on Sunday in elections in North Rhine-Westphalia, just four months ahead of national polls. In addition to the election win, oil prices soared after ministers from the world’s top two producers, Saudi Arabia and Russia, declared their support to extending the output cut deal into 2018. DAX futures were last seen around 12800, with a break above last session’s high of 12850 potentially unlocking further upside.

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