Liquidity returning in new month

A new week and month should see liquidity return to more normal levels in FX and other markets and there are plenty of upcoming events to keep focus on this week. Overnight, the latest interest rate decision from the Australian central bank has seen rates kept on hold at 2%, with the RBA acknowledging the slower pace of the economy but also continuing the softer tone on the exchange rate in the statement which was first seen at the end of the July meeting. Although the latest Chinese PMI data for the manufacturing sector was in line, the fact that it was below 50 has weighed on sentiment, with the Shanghai composite index languishing in negative territory once again and dragging most other indices in Asia with it.

The standout factor over the past few session has been the recovery in the oil price, up by more than 20% over the space of three sessions. Estimates of lower output in the US were combined with signs that OPEC is softening its previous firm stance with respect to production levels, giving some hope that some production cuts are possible to provide support to the oil price. This move should provide some support to commodity based currencies, as can be seen in the recovery of the CAD, although USDCAD remains above the 1.30 level. GDP data is seen there at 12:30 GMT today, with firmer than expected numbers raising the prospect that we see a push towards this level. Later in the week we’re not likely to see any major announcements from the ECB following their meeting, but President Draghi is likely to retain a dovish tone, not least as a means of ensuring the currency does not appreciate after the recent volatility. Later in the month, the focus naturally remains on the Fed and the upcoming meeting, where expectations are still fairly finely balanced on whether rates will be increased or not.