A degree of calm has returned to currency markets, with the Euro, Sterling and Aussie and Kiwi Dollars marginally stronger versus the Dollar after many days of losses, while the “safe-haven” Yen is a tad weaker.
The catalyst was the sharp 4% recovery in the Turkish Lira overnight following the Central Bank of Turkey’s announcement yesterday that it would take measures to provide ample liquidity to domestic banks and calls by Turkish business lobbies for the central bank to hike interest rates. The Lira’s rally has also had a positive impact on other high-yielding currencies, including the South African, Russian Rouble Rand and Mexican Peso which are up about 2%, 1.5% and 1% respectively versus the Dollar.
EUR/USD has edged back over 1.24, also helped by slightly better than expected German GDP growth of 0.5% qoq in Q2, up from 0.4% qoq in Q1. While this modest rebound was in line with (preliminary) Eurozone-wide GDP data, released a fortnight ago, markets may have taken some comfort from the German economy’s ability, for now, to circumvent the worst of the back draft created by the US-centric global trade war.
In Asia-Pacific, the AUD/USD cross has edged up to just shy of 0.73 and Australian equities are up nearly 1% but disappointing Chinese macro data for July have seemingly capped Australian Dollar upside and weighed on Chinese stocks. Chinese retail sales, fixed investment and industrial output growth slowed in July and was weaker than expected, prompting concerns that the Chinese economy is starting to feel the pain from its trade war with the US. Chinese policy-makers have already responded by weakening the Renminbi and boosting credit growth and some analysts now see a chance of policy rate cuts.
