Top Economies Expand, But Forex Markets Risky

The US dollar gained during the Asian session, with the dollar index up 0.20% to last trade at 93.44. The session was busy with ample of data from Asian economies signaling economic expansion. The euro and sterling declined against the US currency. Oil prices rose while gold gave up on some of Friday’s significant gains.

Data signaling the latest economic activity in China was the main news of the day. While activity in the world’s second largest economy continued to expand, as the official PMI remained above the 50-point mark, the pace of growth slowed in July. At 51.4, the official manufacturing PMI narrowly missed estimates of 51.6 and was below the prior month’s 51.7, news outlets reported.

However, due to expanding government investment projects the construction industry boomed, lifting investors’ confidence. The construction sector remained robust with the PMI reading showing a pickup to 62.5 from 61.4 in June. This further spurred demand for steel, cement and other building materials.

Japan’s monthly industrial production rebounded from a 3.6% decline to a 1.6% gain in June, based on the preliminary figures released Monday. Dollar/yen was last trading at 110.68.

Japan's factory output rebounded in June from a decline in May as production of cars and industrial chemicals increased, suggesting economic expansion may be on a more stable footing, Reuters reported.

Transport sector output rose 4.2% in June, rebounding from a 13% tumble in the previous month, as output of passenger cars and automobile engines recovered. Output of chemicals rose 3.4% in June, also a rebound from a 2.2% decline in May.

Meanwhile, factories across the eurozone rounded off the first half of 2017 by ramping up activity at the fastest rate for over six years. IHS Markit's manufacturing purchasing managers' index for the eurozone rose to 57.4 in June, up from May's 57.0.

The global economy is enjoying the "broadest synchronized upswing" it has experienced in the past decade, thanks largely to buoyant growth in world trade which is expected to continue over the next two years, the International Monetary Fund said last week.

In the latest update of its World Economic Outlook report, the IMF said that global recovery is on a firmer footing now than at the time of the last report in April, with growth revised up for Japan, the eurozone, China, and for Asian emerging and developing economies generally.

Geopolitical Risks & Forex Markets

While the world’s top three economies are showing positive momentum, the geopolitical risks have induced investor worries again. Russia has ordered the US to withdraw a large percentage of its diplomats that are currently serving in Russia, following the new sanctions on Russia that US Congress approved last week. Further to this, North Korea tested another intercontinental ballistic missile for the second time in weeks.

New Zealand winter months took a toll on business confidence there with sentiment cooling down in July to 19.4% from 24.8% in June. Rising construction costs and labor skill shortages contributed to lower optimism, but recovery in dairy prices provided some support. Tempered business sentiment is usual during winter months in New Zealand hence the country’s currency didn’t take much notice of the drop in sentiment.

Kiwi/dollar rose slightly following the data release, but traded lower around the 0.749 mark in the late Asian session to be broadly flat on the day. The labor report due on Wednesday could strengthen the kiwi against its US counterpart should the report show tightening employment activity.

While sales of new homes in Australia plunged last month to the lowest since 2013, the aussie rose against the greenback following the news. New home sales fell 6.9% in June from May, reversing two months of gains. However, this release was not of interest to forex traders as China PMI data was published at the same time, which pushed the aussie up. Aussie/greenback was last slightly up at 0.797 ahead of the European session.

The euro was slightly weaker against the greenback during the Asian session to last trade at $1.173. Sterling was also under some pressure against the greenback Monday, with pound/dollar last trading at 1.311.