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Currencies AUD US Dollar Looks to ADP Data, Yellen Speech to Set the Stage for NFP

Talking Points:

  • British Pound Eyeing UK Construction PMI to Drive BOE Policy Outlook
  • US Dollar Looks to ADP Data, Yellen Comments to Set the Stage for NFP
  • Australian Dollar Drops in Asia on Disappointing Trade Balance Report

The economic calendar is quiet in European trading hours, with June’s UK Construction PMI reading amounting to the only bit of noteworthy event risk. The measure is expected to decline for the fifth consecutive period, dropping to an eight-month low of 59.8. An upside surprise similar to yesterday’s Manufacturing PMI outcome is likely to feed BOE rate hike speculation and drive the British Pound higher after prices rose to the strongest level in nearly six years yesterday. Needless to say, an underwhelming result stands to produce the opposite effect.

Later in the day, US news-flow returns to the spotlight as June’s ADP Employment figures cross the wires. Markets have a sort of love-hate relationship with the report. On one hand, it is analogous to the closely-watched Nonfarm Payrolls reading and traders can’t seem to help but look at it as a leading indicator. On the other, its predictive powers are highly inconsistent from month to month. Still, the outcome does seem to set a tone ahead of the official jobs figures’ publication. With that in mind, a print north of the expected 205k reading may offer a boost to the US Dollar, and vice versa.

Also of note, Fed Chair Janet Yellen is scheduled to speak at the International Monetary Fund. Her comments will be followed by a conversation with IMF Managing Director Christine Lagarde. Investors will closely monitor the central bank chief’s rhetoric to gauge the likely time gap between the end of the QE3 stimulus program – expected later this year – and the onset of interest rate hikes. Rhetoric suggesting outright tightening may come relatively soon on the heels of the end of asset purchases is likely to boost the greenback, while a cautious tone may inspire continued selling.

The Australian Dollar underperformed in overnight trade, sliding as much as 0.4 percent on average against its leading counterparts. The move followed a disappointing set of Trade Balance figures that revealed a trade deficit of –A$1911 million in May. This amounted to a far larger shortfall than the –A$200 million gap expected by economists ahead of the release. April’s trade deficit figure was also revised down to –A$780 million from the initially reported –A$122 million result.

Asia Session

European Session

Critical Levels

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