Fending off the bears

The US dollar is mixed Monday morning, fighting off 10-month low against a basket of currencies. Weak inflation and retail sales last Friday failed to bolster the economic outlook in the US. This will make it all the more difficult for the Fed to call weakness for the first part of the year “transitory,” and consequently more difficult for them to raise rates again this year.

In politics, the healthcare bill is on hold… again. Senate Majority Leader Mitch McConnell will delay the vote on legislation to repeal and replace Obamacare until Senator John McCain recovers from eye surgery. McConnell has already lost the support of two Republican senators and cannot afford to lose another if he wants to push the bill through.

The hustle and bustle of the US data stream will be notably quieter this week. We have no speakers from the Fed and only second-tier data coming up. Read more on our Weekly Update.

China’s gains support Aussie dollar

Economic growth in the world’s second-largest economy continued at a robust pace in the second quarter. China’s GDP expanding at an impressive clip of 6.9 percent.

Industrial output rebounded, rising 7.6 percent year-over-year in June, well above estimates for a 6.5 percent increase. Retail sales and investment all beat estimates.

Aussie dollar has gained traction against the USD on the news, recovering from overnight weakness to trade slightly higher against the greenback. We can expect domestic indicators to drive price action later in the week as we wait to hear from the Reserve Bank of Australia. Employment figures towards the end of the week will also be watched.

Round two

Sterling is lower Monday morning, and we continue to watch Brexit headlines across the four-day negotiations for developments on the terms of departure for the United Kingdom. Leading negotiations for the UK, Brexit Secretary David Davis emphasized the need for progress in this round.

20 months might sound like plenty of time to negotiate a break with Europe, but keep in mind that the European Commission has 12 pages solely to regulate marketing standards for bananas.

Infighting amongst the Cabinet back home is also distorting the message of what the UK wants. Prime Minister Theresa May’s Conservatives are on increasingly unstable footing. Rumors of disputes within the party are gaining traction, and party members aren’t helping. Foreign Secretary Boris Johnson was asked point-blank on Monday if the cabinet was split on Brexit, but Johnson said only that he was pleased negotiations had begun and threw his support behind the Prime Minister’s offer to protect the rights of European nationals post-Brexit.

On the other hand, Finance minister Philip Hammond said on Sunday he believed most of his cabinet colleagues backed the idea of having a 2+ year transition period to soften any disruption on the economy.

EURUSD: Euro slightly higher against the US dollar after inflation came in as-expected to confirm a slight slowdown in June from the month prior.

GBPUSD: The pound weaker this morning as rumors of spats within the Conservative leadership cause concerns for round two of Brexit negotiations.

AUDUSD: Aussie dollar slightly up against the USD, recovering from a dip overnight after Chinese growth expanded more than anticipated in the second quarter.

USDCAD: Canadian dollar higher against the greenback as oil prices firm Monday morning.

USDJPY: Yen slightly higher against the US dollar, following a much stronger Swiss franc which indicates a slight risk-off mood in currencies.