Markets in the Asia-Pacific region began the week without much action, despite a flurry of weekend news and data. The sluggish start could be linked to the U.S. market holiday for Labor Day, along with a cautious mood ahead of significant events later in the week, such as various Purchasing Managers' Indices (PMIs), inflation reports, and the U.S. jobs report.
Key news over the weekend included a U.S. court ruling against many of former President Donald Trump's tariffs. The U.S. Federal Circuit Court deemed most of these tariffs illegal, particularly those on fentanyl imports from Mexico, Canada, and China, citing misuse of the International Emergency Economic Powers Act. The ruling is a setback for Trump's tariff policies, even if it is open for appeals till October, which it will face for sure. Additionally, a U.S. judge has not yet ruled on the dismissal of Federal Reserve Governor Lisa Cook, asking both President Donald Trump and Governor Cook to submit further documents by Tuesday.
In the ongoing Russia-Ukraine conflict, Russia launched a massive overnight attack on 14 regions of Ukraine, using nearly 540 drones and 45 missiles, according to Ukrainian President Volodymyr Zelensky. Ukraine retaliated by targeting Russian oil refineries in Krasnodar and Syzran, which had previously been attacked. On the same line, the Financial Times (FT) quoted the European Union President Ursula von der Leyen, saying that they’re working on “pretty precise plans” for possible military deployments to Ukraine, with full U.S. backing for post-conflict security.
In maritime news, the UK Maritime Trade Operations (UKMTO) reported an incident where a vessel was hit by an unidentified projectile, causing a loud bang. Thankfully, the crew was unharmed, and the ship continued its journey.
U.S. economic data also took center stage on Friday, with the Personal Consumption Expenditures (PCE) price index meeting expectations but failing to move the U.S. Dollar. The Wall Street Journal reported that Alibaba has developed a new AI chip to compete with Nvidia in China, showcasing Beijing's push to build its own AI technology in response to U.S. restrictions.
China's official PMI data showed that the manufacturing sector contracted for the fifth consecutive month in August, although it improved slightly from the previous month. Non-manufacturing activity, including services and construction, grew modestly, with the services PMI rising to 50.3, and the composite index increasing to 50.5. On the downside, China's property sales dropped 17.6% in August, marking the sixth straight month of decline. However, China's S&P Global Manufacturing PMI (previously Caixin PMI) saw a significant jump to 50.5, higher than expected and marking the fastest growth in five months.
In South Korea, exports were heavily impacted by U.S. tariffs, with growth slowing sharply to just 1.3% in August.
Japan's Jibun Bank PMI Manufacturing fell slightly to 49.7 in August, down from 49.9 in July, indicating a small contraction. On a positive note, Japan's capital spending in Q2 grew by 7.6%, beating expectations of 6.3%. However, corporate sales and recurring profits eased from previous readings.
Australia also released a range of data. The Australian Manufacturing PMI for August came in at 53.0, its highest since September 2022, signaling strong activity. However, Australia's privately surveyed inflation gauge from the Melbourne Institute showed a -0.3% month-on-month decline, compared to a +0.9% rise previously. Business inventories in Q2 grew 0.1% quarter-on-quarter, slightly below the expected 0.2%. Meanwhile, Australian building permits in July dropped to their lowest level since March 2024, falling by 8.2% month-on-month, far worse than the expected -4.8%.
In New Zealand, building permits rose by 5.4% in July, recovering from a 6.0% drop the previous month. New Zealand Prime Minister Christopher Luxon also announced that the country would allow wealthy investor visa holders to purchase or build homes worth at least NZ$5 million.
As for market reactions, most Asia-Pacific stocks were lower, although shares in China and Hong Kong saw some gains. The U.S. Dollar Index (DXY) dropped for the fifth consecutive day, hitting its lowest point in over a week. The AUDUSD rose on slight optimism, reaching a 13-day high, while the EURUSD and GBPUSD remained firm. The USDJPY, on the other hand, lacked clear direction despite continued pressure.
Gold prices held firm, hitting their highest levels since April 22, benefiting from a weaker U.S. Dollar and a technical breakout at $3,420 resistance. Further, Crude oil extended its decline from Friday, with no major changes in the market, while cryptocurrencies also moved lower, with Bitcoin reaching its lowest level since July 2 and Ethereum also posting mild losses.
The EURUSD rose to a week’s high, continuing its three-day uptrend, while the GBPUSD also remained stronger after a two-week downtrend. In contrast, the USDJPY struggled to find direction, staying under pressure due to market inaction, mixed data from Japan, and the U.S. holiday.
The recent rise in EURUSD could be seen as a consolidation ahead of this week’s key European Union PMIs, speeches from European Central Bank (ECB) President Christine Lagarde, and other major events like the U.S. ISM Services PMI and Nonfarm Payrolls (NFP). A potential technical resistance near 1.1730, along with ongoing Ukraine-Russia tensions, may also challenge EURUSD buyers.
For GBPUSD, the recent incident with a UK ship in the Red Sea and mixed economic data from the UK could pose risks, especially if the upcoming UK PMIs are weaker and the U.S. jobs report dampens employment concerns.
The USDJPY is facing difficulty in justifying its haven status, given the mixed economic data from Japan and uncertainty over whether the Bank of Japan (BoJ) will raise rates in 2025. Additionally, U.S.-Japan trade tensions and domestic political challenges are adding to the pressure, making it harder for USDJPY bears to benefit from a softer U.S. Dollar.
AUDUSD rises for the fifth consecutive day, reaching its highest level since August 14 by press time, despite lacking strong upward momentum. The Aussie pair is benefiting from cautious market optimism, even as it largely ignores mostly negative data from China and mixed figures from Australia. However, growing expectations of a rate cut by the Reserve Bank of Australia (RBA) could challenge the pair's momentum in the near term.
The NZDUSD rose for the third consecutive day, hitting a week’s high, likely driven by positive New Zealand building permits data and a softer U.S. Dollar, despite mixed data from China.
Meanwhile, USDCAD dropped for the fourth straight day, reaching a three-week low. This decline comes even as crude oil, a key export for Canada, extended its pullback from Friday. The drop in USDCAD is also fueled by growing bets on a dovish Bank of Canada (BoC) stance. Additionally, rising U.S.-Canada trade tensions and a cautious market mood ahead of Friday’s employment reports from both countries are adding to the pressure on the pair.
Gold rose for the fifth consecutive day, nearing key resistance at $3,480, a level last seen in April 2021. The rally is driven by a break above the previous $3,420 resistance, along with its haven status and ongoing market uncertainty. The softer U.S. Dollar further supports the rise in XAUUSD, pushing gold toward its record high.
Meanwhile, crude oil remains weak for the second straight day, amid concerns about declining demand and fears that Russia may soon re-enter the energy markets. The ongoing conflict with Ukraine continues to disrupt oil prices, while growing fears of an increase in OPEC+ supply and higher U.S. oil production are also weighing on traders.
Cryptocurrencies remain under pressure following a downbeat week marked by concerns over the Federal Reserve and month-end positioning. Despite upbeat industry news, on-chain data and profit-taking are testing the bulls, especially after record highs in August. As a result, Bitcoin (BTC) has fallen to a two-month low, while Ethereum (ETH) continues to weaken for the second straight day.
With the U.S. holiday and a light economic calendar elsewhere, markets are likely to experience a quiet Monday. However, European and British traders’ reactions to the latest economic, political, and trade news could spark some movement, providing momentum for traders. This may allow the U.S. Dollar to recover some of its recent losses, potentially challenging the AUDUSD bulls and putting a halt to further rises in major currencies and gold, especially as they near key technical resistance levels.
Looking ahead, all eyes will be on Friday’s critical U.S. employment report, along with the upcoming ISM Manufacturing and Services PMIs. Additionally, updates on the legal battle between Donald Trump and Lisa Cook, the European Union’s plans regarding Russia, and Trump’s response to the U.S. court ruling his tariffs illegal could keep traders on edge.
May the trading luck be with you!
