• Overnight, the Federal Reserve policymakers agree that more economic data is needed before raising interest rates, although some see a need to tighten policy soon, according to the minutes from the U.S. central bank’s July 26-27 policy meeting. The minutes showed that members of the rate-setting FOMC were generally upbeat about the U.S. economic outlook and labour market. “Some … members anticipated that economic conditions would soon warrant taking another step in removing policy accommodation,” the Fed said in the minutes. Several Fed policymakers, however, said a slowdown in the future pace of hiring would argue against a near-term hike, and members of the FOMC said they wanted to “leave their policy options open.”
• “Widening Fed Consensus on Inflation Overshadows Rate-Hike Debate” – http://www.bloomberg.com/news/articles/2016-08-17/widening-fed-consensus-on-inflation-overshadows-rate-hike-debate
• St. Louis Fed’s Bullard is sticking with his view that a single move is all that is needed for a long time to come, and its does not have to happen anytime soon. Bullard said on Wednesday he did not put much weight on whether the central bank acts in September or even at all this year, given that he now thinks a single hike is all that is needed to maintain unemployment and inflation rates near the Fed’s target levels.
• The number of people claiming unemployment benefit in Britain unexpectedly fell in July despite the shock decision by voters to leave the European Union, suggesting little immediate impact from Brexit on the labour market. Benefit claimants fell by -8.6K in the month, compared with an increase of 900 in June, and there was only a small fall in the number of jobs employers were trying to fill, the Office for National Statistics said on Wednesday. The unemployment rate held steady at 4.9%. Wage growth in the April-June period picked up slightly to 2.4% from 2.3%, reflecting the higher minimum wage in April. The number of unemployed fell by 52,000 to 1.641 million while the number of people in work rose by 172,000 to 31.750 million and pushing the employment rate at 74.5%, a latest record high.
• Japan’s top currency diplomat, Asakawa, warned investors on Wednesday against pushing up the yen too fast, saying Tokyo would respond to excessive market moves. A rising yen tends to worry Japanese policymakers because it reduces export competitiveness and weighs on corporate earnings, but Japan’s options are limited, because other Group of Seven countries frown upon competitive currency devaluation. “We would have to respond if there are excessive moves. We’re closely monitoring (the market),” he said, adding that Japanese authorities were exchanging views on the currency market with Group of Seven partners. The yen’s rise is also problematic for Japan because it lowers import prices, making it difficult to shake of deflation.
• Australian workers saw wages grow at the slowest pace on record last quarter, a depressant for inflation and consumer spending that highlights the risk of yet more rate cuts in coming months. Data from the Australian Bureau of Statistics on Wednesday showed its wage price index rose 0.5% in the June quarter, the third straight quarter of such meagre gains. The annual rate stayed at 2.1%, a scrooge-like pace typically only associated with recessions rather than an economy growing around 3% a year as present. Intense competition kept pay rises to 2.0% in the private sector and not a single industry, from mining to health care, paid more than 2.5%.
• South African retail sales slowed more than expected in June with purchases of credit-linked items declining sharply as consumer spending remained under pressure despite a recent pause in policy tightening by the central bank. Retail sales grew by 1.7% year-on-year in June according to Statistics South Africa data on Wednesday, much slower than the 3.8% expansion predicted by a Reuter’s poll of analysts. Retail sales had grown 4.5% in May. The economy is on the verge of a second consecutive quarter of contraction after shrinking 1.2% in Q2.
• The Brazilian government will unveil new, revised economic forecasts for this year and next, according to the Finance Ministry, amid growing expectations for an upward revision of growth for 2017. The government is confident the worst of Brazil’s two-year recession is behind it and will increase its economic growth forecast for next year to above its current 1.2%, officials have told Reuters. Brazil had forecast the economy would contract 3.1% this year. Annual inflation is expected to reach 7.2% this year and 4.8% next year, according to the government’s official forecast.
• The dollar erased early gains and was almost flat against the euro, yen and Swiss franc after minutes from the Federal Reserve’s July meeting showed general agreement that more data was needed before the next rate increase from the central bank. The dollar index, which measures the greenback against a basket of six major currencies, closed flat at 94.726 after falling as low as 94.426 Tuesday. That marked its lowest level since June 24, or the day after Britain voted to exit the European Union, which unleashed turbulence in global markets.
• “Dollar Rally Attempt Stalls With Fed Still Divided on Rate Hike” – http://www.bloomberg.com/news/articles/2016-08-17/dollar-pares-gain-as-fed-officials-split-on-need-for-rate-hike
• The euro was last up 0.1% against the dollar at $1.1286, not far from its high touched Tuesday of $1.1322. The dollar was up 0.17% against the Japanese yen at 100.46 yen, after hitting a low Tuesday of 99.53 yen. Against the Swiss franc, the dollar was last up 0.08% at 0.9623 franc, compared to a low Tuesday of 0.9585 franc.
• The sterling was relatively unchanged after data showed claims for jobless benefit in Britain unexpectedly fell in July were fleeting on Wednesday amid the FOMC Minutes supported the U.S. dollar as the FOMC remained divided about making another move to continue with its monetary policy normalization process.
• Sterling rose to $1.3058 immediately after the data, up 0.1% on the day, and firmer than $1.3029 before the data was released. It slid back to $1.3010 by 1450 GMT, down 0.25% on the day. It closed unchanged at $1.3040. The euro eased to 86.35 pence from 86.47 pence after the data. But the single currency recovered and was last trading 0.2% higher at 86.64 pence, approaching a three-year high of 87.245 pence struck on Tuesday. “The BoE has made it clear that it can tolerate an inflation overshoot and will remain very accommodative, supporting our $1.24 target for sterling/dollar,” Morgan Stanley analysts said in a note.
• The Canadian dollar strengthened against its U.S. counterpart for the eighth consecutive session as the FOMC Minutes highlighted that the Fed will need to see more data before it’s the confident for another hike and oil resumed its rally. The Canadian dollar was trading at C$1.2894 to the greenback, or 77.56 U.S. cents, weaker than Tuesday’s close of C$1.2853, or 77.80 U.S. cents. The currency’s strongest level of the session was C$1.2827, while its weakest was C$1.2919. On Tuesday, the Loonie touched it’s the strongest since June 24 at C$1.2798 as domestic data showed a rebound in factory sales. The currency last fell on Aug. 5. Still, weak U.S. business investment has hampered a long-awaited pick-up in growth of Canada’s non-energy exports, economists say, while a weaker Canadian dollar has not helped exports as much as expected.
• The Australian dollars were subdued on Wednesday during the Asian session after the U.S. dollar received a lift on speculation the U.S. Federal Reserve may raise interest rates this year. The US dollar was bid during the European session as New York Fed Dudley’s hawkish comments continued to resonate… The Aussie closed down against the greenback by -0.5% at $0.7654. It traded as low as $0.7608 ahead of the FOMC Minutes. But after the release the comment on the Fed needing more data before they have the green light to hike had the USD bid being reversed. Repeated fails at 0.7750/60 inturn encouraging weak AUD longs to be pared.
• China’s Yuan weakened on Wednesday, on stronger prospects for a U.S. interest rate rise this year and following the approval of a stock link between the Shenzhen and Hong Kong equity markets. The PBoC set the midpoint rate at 6.6056 per dollar prior to market open, firmer than the previous fix of 6.6305. The spot market opened at 6.6220 per dollar and was changing hands at 6.6301 at midday, 34 pips weaker than the last close and 0.37% away from the midpoint. The spot rate is allowed to trade with a range 2% above or below the official fixing on any given day. The offshore Yuan was trading -0.08% away from the onshore spot at 6.6357 per dollar.
• “Hong Kong Dollar Forwards Surge to Highest Since 2010: Chart” – http://www.bloomberg.com/news/articles/2016-08-17/hong-kong-dollar-forwards-surge-to-highest-since-2010-chart
• The riskier assets and currencies have been performing well since the U.S. payrolls data released earlier this month showed that while the number of jobs indicated the economy was robust, productivity and inflation were subdued. The low volatility environment would encourage investors to borrow in low-yielding currencies to buy higher yielders – the so-called carry trade favoured by asset managers who follow macro trends, speculators and hedge funds. Carry trades have generated 5% annual returns in the past three decades, according to a study by the Cass Business School released in late 2012. Amongst emerging market currencies, investors are buying the Mexican peso, South Korean won, the South African rand and the Brazilian real. The rand hit its highest since October 2015 this week, while the Brazilian real is trading near one-year highs.
• South Africa’s rand retreated further against the dollar on Wednesday as risk sentiment switched, with investors now seeing a greater chance of rate rises in the United States. The rand had weakened 0.63% to 13.4890 per dollar, its weakest level in two sessions, slipping further away from technical resistance around 13.3000. The rand barely moved after June retail sales registered slower than expected growth, again raising fears that Africa’s most industrialised economy may contract for a second consecutive quarter after shrinking 1.2% in the first.