Market Overview for August 19th
Here’s what you need to know for Tuesday, August 19th:
In the financial markets, trading activity remained subdued early on Tuesday, following a quiet start to the week. Later, attention will shift to home building permits data from July, a significant item on the US economic calendar. Investors are also keenly watching the Canadian Consumer Price Index (CPI) figures.
US Dollar (USD)
The index that tracks the USD against a basket of six major currencies ended Monday on a positive note. However, the main indices on Wall Street barely moved as investors processed news from a meeting between US President Donald Trump and Ukrainian President Volodymyr Zelensky.
Zelensky discussed security guarantees for Ukraine with Trump and other European leaders, expressing his willingness to meet with Russian President Vladimir Putin. Earlier, Secretary of State Marco Rubio confirmed efforts to collaborate with European and non-European allies for Ukraine’s security. On Tuesday morning in Europe, US stock index futures dipped by around 0.2%, reflecting a cautious market sentiment, while the USD index steadied around 98.00.
Australian data indicated a rise in consumer sentiment, with Westpac’s consumer trust improving from 0.6% in July to 5.7% in August. Meanwhile, the AUD/USD pair struggled to benefit from this encouraging data, trading just below 0.6500 on Tuesday morning.
In New Zealand, the producer price index saw a quarterly increase of 0.6% in Q2, falling short of the 1.4% market expectations, especially after a 2.9% rise in Q1. The Reserve Bank of New Zealand is set to announce its monetary policy decision during the early Asian trading hours on Wednesday. The NZD/USD remains relatively stable, hovering around the crucial 0.5900 mark.
After a slight decline on Monday, the USD/CAD pair approached the 1.3800 level on Tuesday morning. There are projections for annual CPI inflation in Canada to decrease from 1.9% in June to 1.7% in July.
On the EUR/USD front, the currency pair lost roughly 0.4% on Monday and continued its downward trend into Tuesday’s early Asian session. After hitting a low of 1.1640, EUR/USD managed to recover, eventually ending near 1.1680.
The GBP/USD had a weak start earlier on Tuesday, dipping below 1.3500 before bouncing back in European trading to around 1.3520.
As for USD/JPY, building on Monday’s gains has been challenging, with important trade balance data for July scheduled for release in Wednesday’s early Asian session.
Gold saw a slight recovery on Monday but couldn’t maintain that momentum, closing the day flat. The XAU/USD remains sideways above $3,350 on Tuesday morning.
Inflation Insights
Inflation FAQ
Inflation reflects the increase in prices for a common basket of goods and services. Headline inflation is typically expressed through monthly and year-over-year percentages. Core inflation, on the other hand, excludes more volatile items like food and fuel, which fluctuate for various reasons. Economists often focus on core inflation to keep inflation at a manageable level—generally around 2%.
The Consumer Price Index (CPI) tracks price changes in a basket of goods and services over time, usually measured in monthly and year-over-year percentages. Core CPI is what central banks target since it excludes volatile food and fuel prices. If core CPI exceeds 2%, interest rates typically rise and vice versa. This relationship usually means that higher inflation can strengthen a currency, and the opposite applies when inflation decreases.
It might seem counterintuitive, but high inflation in a country can boost its currency’s value. When inflation rises, central banks often raise interest rates, attracting global investors looking for a good return on investment.
Gold, traditionally seen as a safe-haven asset, often attracts investors during high inflation periods. However, this isn’t a hard and fast rule. When inflation rises and interest rates increase, it can negatively impact gold as more investors may prefer cash accounts. Conversely, lower inflation tends to be supportive of gold prices as interest rates decrease, making gold more of an appealing investment alternative.
