The long-awaited break may finally be shifting forex trading summer ranges. EUR/USD, AUD/USD, NZD/USD, XAU/USD, and USD/CHF all pushed through stubborn support and resistance levels as USD set new lows for the year; USD/CAD initiated an attempt but turned at support and reversed its run as the day’s only Canadian fundamental announcement, July building permits, printed a shocking −11.4% m/m drop rather than the expected 0.4% rise.

Explanations for the sudden move abound. Bloomberg suggested that the expected U.S. federal deficits suddenly became important to currency traders, pointing out that USD forward shorts are more numerous than at any time since July 2008; however, that logic fails to impress when one recalls that was the month EUR/USD rolled off the table.

A more plausible cause is that USD has become cheaper to borrow than JPY. With the RBA moving to a neutral and (within the months ahead) hawkish bias, and with the U.S. Federal Reserve’s proven determination to prevent a catastrophic financial meltdown, it’s possible commercial traders are sufficiently risk-accepting to resume the carry trade, with USD rather than JPY as a funding currency. In such a scenario, retail traders would do better to track AUD/USD as a barometer of risk rather than AUD/JPY. Indeed, it’s possible the current strength of NZD/USD is due to “stealth” carry traders already active.

Granted that the data aren’t encouraging much range-breaking follow-through. The U.S. consumer confidence reading for the week ending 6 September printed −48 from −45 previous and U.S. July consumer credit declined more than five times the expected amount, falling by US$21.6Bn as banks maintain tight lending standards and consumers reduce credit usage due to employment fears. Recall that the last of July saw the initiation of the automotive “cash for clunkers” scheme that was supposed to have been so successful.

On the Australian data front, there are encouraging numbers in August job advertisements (4.1% latest from −1.7% previous) and September consumer confidence (5.2% latest from 3.7% previous) as well as August NAB business conditions (4 latest from 1 previous) and business confidence (18 latest from 10 previous, a six-year high). However, July retail sales dropped −1.0%, home loans −2.0%, and investment lending −4.0%, all considerably below market expectations.

There are three interest rate decisions on tap:
•    the RBNZ for Wednesday 9 September, 9:00 PM GMT (Thursday 10 September, 7:00 AM Canberra time);
•    the BoE for 10 September, 11:00 AM GMT (9:00 PM Canberra time);
•    and the BoC for 10 September, 1:00 PM GMT (11:00 PM Canberra time).

None of these central banks is seriously expected to alter interest rates and the BoC decision may indeed be a non-event. The most recent RBNZ staff projections are based upon a weaker currency and there have already been complaints regarding the impact of NZD’s current strength upon their terms of trade; they’re unlikely to strengthen it further by shifting to a more neutral or hawkish bias so soon.

Following the BoE’s increase to their quantitative easing programme, the strength in U.K. July industrial production was surprising (0.5% m/m latest and previous revised up to 0.6%). The NIESR estimate of August GDP turned positive at 0.2% and another assault by GBP/USD on the 1.6600 level is certainly possible.