Key Points from This Week
US Data Continues to Improve
US economic releases over the week highlighted further strength in the recovery, helping the USD recoup some its recent losses. Durable goods was seen well above expectations last month while the preliminary GDP number was not as bad expected. Pending home sales were also seen making a firm recovery last week, helping bolster the view that the US economic recovery is gathering pace.
US/China Trade Talks Back on Track
Following a three month pause in talks as both countries battled with the coronavirus crisis, the US and China confirmed that trade talks resumed this week. The US administration issued a statement saying that the two sides had reaffirmed their commitment to maintain the deal and furthering negotiations. The news comes as a big relief given the recent fears that trade talks might collapse a result of building US/China tensions over recent months.
Fed to Target Average of 2% Inflation
Speaking at the Jackson Hole Symposium this week, Fed chair Jerome Powell said that the Fed will now actively target a move back to an average of 2% inflation instead of a fixed target of 2%. The strategy shift means the central bank will now have more flexibility to maintain accommodative monetary policy for longer in order to support the economy and, by allowing inflation to overshoot 2%, there would eb more scope to ease in future times of need.
Key Events Next Week
RBA September Meeting
Next week’s meeting is unlikely to see any change in policy from the RBA. Governor Lowe recently said that the bank has concluded there would be little benefit in cutting already ultralow interest rates and also pushed back against the benefit of intervening in the AUD rally, a message the bank is likely to reiterate this time around.
US Manufacturing & Non-Manufacturing
The latest set of ISM readings are due next week and traders will be closely watching to see if the recent upside momentum continued last week of if there was any giveback. Another set of strong readings would certainly help USD this week while any downside surprise would be a negative for the Dollar.
US Labour Reports
The next round of US jobs numbers is due next week. While the prior month’s reading confirmed strong monthly growth once again, momentum has been waning. Should this latest release show any further loss of momentum, this could be an issue for the Dollar.
Keep An Eye On
Brexit Trade Talk Headlines
Reports this week of growing rifts between EU leaders and the UK over the ongoing Brexit trade talks have raised fears that talks could fall apart, leading to a no deal exit at the end of the year. UK media has been citing reports that Michel Barnier and David Frost have given the UK two weeks to save negotiations or the talks will be pulled.
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