Tuesday, August 12, 2014

Gold, USD/CAD and USD/MXN

Gold crossed above the $1300 level last week, climbing as high as $1322 on Friday. The precious metal has benefited as the crises in Ukraine and Iraq have worsened. The US has accused Russia of massing troops on its border with Ukraine, and tensions are high as the EU has slapped stronger sanctions on Russia, while Moscow has retaliated by banning many food imports from the West. In Iraq, Islamic State militants, who have captured large parts of Iraq, have attacked and displaced thousands of ethnic Kurds, which has resulted in a growing humanitarian crisis. US President Barak Obama has authorized air strikes against the militants in order to protect the Kurds and safeguard US interests. The situation in Iraq is volatile and could quickly destabilize even further. In Gaza, a 72-hour ceasefire is holding as negotiations between Israel and Hamas are being conducted in Cairo.

The Japanese yen is flat on Tuesday, as the pair trades slightly above the 102 line late in the European session. In economic news, today’s US highlight is JOLTS Job Openings, with the markets expecting a strong reading. In Japan, Revised Industrial Production posted a sharp decline of 3.4%, well short of expectations. Later in the day, we’ll get a look at GDP, one of the most important economic indicators, as well as the minutes of the last BOJ policy meeting.
Is the Japanese manufacturing sector in trouble? Japanese manufacturing indicators continue to post declines this week. Tertiary Industry Activity came in at -0.1%, short of the estimate of a 0.2% gain. Revised Industrial Production dropped 3.4% last month, its steepest fall since October 2012. Meanwhile, markets eyes on Japanese GDP, which will be released later on Tuesday. The markets are braced for a decline of 1.7%, in Q2, which would mark the first drop in economic activity since Q4 of 2012. Traders should be prepared for the yen to lose ground if GDP posts a weak reading.

 USD/CAD and USD/MXN are trading as a Nafta bloc as the Canadian dollar and Mexican peso take their cue from the greenback, says Camilla Sutton, chief currency strategist at Scotiabank. The pairs tend to trade in tandem when the US is the "epicenter," she says. "Right now, we have that because we have the improvement in U.S. data spurring a tremendous focus on the Fed and when they will start to enter a hiking cycle."