Welcome to the Weekly Commentary

EUR/USD EUR/USD lost ground last as Spanish 10-year bonds crept back up towards the 7% level and the ECB stated it was ready to intervene in short term debt markets. Also, comments from the Fed's Bernanke indicated the Fed might soon implement QE III.  The week began with the rate making its weekly high of 1.2442 on Monday after Fed Chair Bernanke stated "even though some key aggregate metrics--including consumer spending, disposable income, household net worth, and debt service payments--have moved in the direction of recovery, it is clear that many individuals and households continue to struggle with difficult economic and financial conditions." The rate continued consolidating on Tuesday as Italian GDP showed the economy had contracted by -0.7% q/q as widely anticipated and German Factory Orders declined -1.7% m/m, versus a decline of -0.9% expected. On Wednesday, the pair began losing ground as Spanish 10-year bond yields exceeded 6.9% and Greece's CCC rating was lowered by S&P from stable to negative. Also, Germany sold 3.4B in 10 year bunds which yielded 1.42% with a bid to cover ratio of 1.8X, versus a previous rate of 1.31% with a bid to cover of 1.5X. The rate continued selling off on Thursday as the ECB's Monthly Bulletin stated "governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist -- with strict and effective conditionality." Adding pressure to the rate was the U.S. Trade Balance, which contracted to a deficit of -42.9B from a previous -48.0B, versus -47.B expected. The pair then made its weekly low of 1.2241 on Friday after French Industrial Production came out flat versus an increase of +0.4% expected and U.S. Import Prices declined -0.6%, versus an increase of +0.1% anticipated. EUR/USD went on to close at 1.2290, showing an overall decline of -0.8% from its previous weekly close.

USD/JPY USD/JPY rose marginally last week as the BOJ left rates unchanged and refrained from increasing its stimulus programs. The week began on a soft note with the rate making its weekly low of 78.13 on Monday after comments from the Fed's Bernanke put pressure on the rate. The pair then recovered on Tuesday in the absence of any significant economic data out of either country. On Wednesday, the rate fell as the Japanese Current Account came out with a surplus of +0.77T, versus +0.75T expected.  The pair then traded marginally higher on Thursday after the BOJ left its benchmark Overnight Call Rate unchanged at <0.10% as was widely anticipated. Also, the central bank left its Asset Purchase Program at ¥45T, its Stimulus Program at ¥70T and Loan Program at ¥25T, all unchanged. In its Monetary Policy Statement, the bank stated, "Overseas economies have shown moderate improvement, though limited in scope; on the whole, they still have not emerged from a deceleration phase. In global financial markets, some nervousness continues to be seen, mainly due to concern about the European debt problem." The rate then made its weekly low of 78.15 on Friday as asset flows favoured the Greenback bringing the rate to close at 78.26, showing an overall gain of 0.2% for the week.

GBP/USD GBP/USD gained ground last week despite the August BOE Inflation Report downwardly revising GDP and inflation forecasts from 2013 to 2015. The week began with the rate trading off of its weekly low of 1.5545 on Monday after the UK Halifax HPI declined -0.6% m/m, versus -0.5% expected. The rate then consolidated at a higher level on Tuesday as UK Manufacturing Production declined by only -2.9% m/m, versus an expected decline of -4.0%, and the UK BRC Retail Sales Monitor, which increased +0.1% y/y, versus a previous reading of +1.4%. Cable continued higher on Wednesday after the BOE's Inflation Report stated, "A year ago inflation was rising and heading towards 5%. It has now fallen to within touching distance of the 2% target. The big picture in today's Report is of a further decline in inflation, as external influences fade and domestic cost pressures ease, and a gradual recovery in output. Nevertheless we are navigating rough waters and storm clouds continue to roll in from the euro area." On Thursday, the rate fell marginally after the UK Trade Balance showed a deficit of -10.1B, versus an expected deficit of -8.5B. Cable then made its weekly high of 1.5700 on Friday after UK PPI Input rose +1.3% as widely anticipated. GBP/USD went on to close the week at 1.5686, showing an overall gain of +0.3%.

AUD/USD AUD/USD gained marginally last week as the RBA left rates unchanged and Australia reported better than expected employment data. The week began with the rate consolidating at the same level on Monday after Australian ANZ Job Advertisements declined by -0.8% m/m, versus a previous decline of -1.1%. The pair then fell marginally on Tuesday as the RBA left its benchmark Cash Rate unchanged at 3.5% and upwardly revised growth forecasts. In the statement following the rate announcement, the RBA noted, "Financial market sentiment has been subject to large swings in response to developments in the euro area and the evolving outlook for global economic growth. The outcome of the Greek elections in June, and various announcements by European policymakers since then, helped to boost confidence, but only temporarily." The rate then rose on Wednesday despite Australian Home Loans increasing +1.3% m/m, versus an increase of +2.1% expected. The pair then made its weekly high of 1.0612 on Thursday after Australian Employment Change increased +14.0K in July, versus an expected rise of +10.2K, and the Australian Unemployment Rate, which dropped a notch to 5.2% from 5.3%. The rate then made its weekly low of 1.0496 on Friday before the RBA Monetary Policy statement revised its global growth forecasts for Australia from 3% to 3.75%. The rate then recovered, bringing AUD/USD to close at 1.0575 with an overall gain of +0.1% from its previous weekly close.

USD/CAD USD/CAD lost ground last week as Canada reported mixed economic data and BOC Governor Mark Carney reiterated the central bank's hawkish stance. The rate began the week on a soft note, with the rate declining after comments from the Fed's Bernanke weighed on the Greenback. The pair continued its decline on Tuesday as Canadian Building Permits declined by -2.5% m/m, versus an expected decline of -3.5%, and Canadian Ivey PMI, which printed at 62.8, versus an expected reading of 52.0. On Wednesday, the Loonie continued strengthening after comments from BOC Governor Mark Carney suggested the central bank might begin raising interest rates sooner than any of its peers. The rate continued declining on Thursday despite Canadian Housing Starts coming out at 209K versus 212K expected and the Canadian Trade Balance showing a deficit of -1.8B, versus -0.9B expected. The pair then made its weekly low of 0.9904 despite Canadian Employment Change showing a loss of -30.4K jobs, versus an expected increase of +9.6K and the Canadian Unemployment Rate rising to 7.3% from 7.2%. USD/CAD went on to close at 0.9908, showing an overall decline of -1.0% for the week.

NZD/USD NZD/USD declined last week as New Zealand reported weaker than expected employment numbers. The week began on a positive note with the rate making its weekly high of 0.8221 on Monday in the absence of any significant economic data out of either country. On Tuesday, the pair began falling after the New Zealand Labour Cost Index increased by only +0.5% q/q, versus an expected increase of +0.6%. The pair then consolidated on Wednesday as the United States reported better than expected Preliminary Non-Farm Productivity. On Thursday, the rate declined after the New Zealand Unemployment Rate increased a notch to 6.8% from 6.7% with an expected decline to 6.5%, while New Zealand Employment Change dropped -0.1% q/q, versus an expected increase of +0.3%. The pair then made its weekly low of 0.8081 on Friday before trading higher on position squaring, bringing NZD/USD to close at 0.8130, showing an overall loss of -0.6% from its previous weekly close.