Despite most traders being back from the summer holidays, there was little movement in key FX pairs this week. In our FX review, most of the focus remains around US data digestion following the big NFP release that we spoke of last week. Aside from this, we note the dovish moves from the Australian Central Bank, the RBA. Finally, GBP continues to trade well despite a mixed bag of data.

Reviewing the stalling USD move

Last week closed with a larger miss in key US employment data. As we noted last week, the payrolls figure came in at 235k vs 750k expected. USD was sold off in the initial aftermath as we closed the week.

On open, it was clear that sentiment wasn’t firm enough to carry this USD move further. For example, GBPUSD opened up around the 1.3850 mark but closed the week at 1.3830. Limited volatility during the week gives us the impression that the market isn’t convinced that the poor data figures will be enough to prevent the US Fed from tapering off asset purchases this month/next month.

This sentiment can be seen from other crosses, particularly against low yielding currencies such as EUR and CHF. We see good opportunities in these pairs to trade USD strength we feel will materliase in coming months. With the potential for rising US yields, the differential between something like the German Bund and the US Treasury could widen to a good extent. This would likely lead to USD strength vs EUR, which is why we think short EUR/USD from current levels is a good fundamental trade.

An RBA dovish taper

Aside from USD musings, the other point worthy of adding to our FX review was the latest RBA meeting. It did announce that it would be tapering off assets, but at a slower rate than the market was expecting. It will reduce the pace of weekly bond purchases from AU$5bn to AU$4bn until at least February.

This saw AUD/USD lose ground, trading down from 0.7450 to 0.7350 over the course of the week. This follows a strong rally from the end of August for AUD. Given the above potential strength from USD in the near future, it probably doesn’t make sense to look to get long AUD here given the dovish taper from the RBA.

A mixed bag for GBP

Finally, in our FX review we note the mixed bag of data out this week from the UK economy. Industrial production on Friday was a strong beat, coming in at 1.2% gain versus the consensus figure of 0.4%.

However, GDP growth for July only grew by a punitive 0.1% against a projection of 0.6%. One would think this is more concerning for GBP looking forward, with an outlook of weaker growth. So far though, GBP has held its ground, likely due to other offsetting data prints on Friday as mentioned above.

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