While most asset classes have begun the new trading week confined to relatively tight ranges, currency markets have been whipped into a frenzy, with the latest poll on the Scottish referendum showing the “Yes†vote has moved on top for the first time since polling began, meaning the “No†vote has now blown a 22-point lead.  The reality of Scottish independence as the September 18th ballot nears has thrown the UK government into panic mode, with London trying to hang on to the union with politicians promising more autonomy for Edinburgh moving forward.  While the UK government is busy trying to stave off a dissolution of the country, the Sterling is getting pounded and has dropped over 1% as we go to print, dragging GBPUSD to the lowest level since November 2013.  The Pound is beginning to stabilize in the mid-1.61s, yet there will likely be further volatility in the days to come as investors weigh the likelihood of a “Yes†vote, with the referendum on Scottish independence no longer what one would classify as a “fat-tail†risk.
Asian markets were relatively quiet overnight, with volumes dry as China and most of North-Asia was away celebrating the Mid-Autumn festival.  Despite the holiday Monday, China reported strong trade balance numbers for the month of August, with exports leading the charge with a y/o/y increase of 9.4%, topping expectations of an 8.0% increase.  The larger than expected trade surplus was also a by-product of imports shrinking by 2.4% compared to the last twelve months, which has not translated well for countries with export-ties to China, with the Loonie, Aussie, and Kiwi all trading lower this morning.  The Japanese Yen is moving north of the 105 handle by a modest amount this morning, stung by downward revisions to Q2 GDP which saw growth contract by 7.1% instead of the 6.8% that was previously reported. That being said, the offer tone to the Yen is more susceptible to increase based on interest rate markets in the US, with the big domestic driver for the currency to come when Q3 numbers start hitting the wires and investors analyze whether the effects of the sales-tax hike are lingering.
As we head into the North American open, S&P futures are displaying a modestly red shade before the bell, while Brent Crude flirts with dropping into the double-digits, a level not seen since June of last year.   The Loonie is valiantly trying to regain its composure after the weakness displayed overnight; however, the better than expected Building Permits number for the month of July has not been able to offset the Chinese import data and softness in commodity prices.  Supporting Poloz’s warning about the strength of the housing industry within the Bank of Canada statement last week, permits came in with another huge monthly increase, printing at 11.8% and following an upwardly revised 16.4% reading in June.  While permits aren’t likely to have a significant effect by themselves on monetary policy, the combination of factors in the housing industry will likely prevent the BoC from going full-on dovish in order to boost growth prospects.
Further reading:
GBP/USD set to fill the gap, EUR/USD likely to lose 1.29 – Elliott Wave Analysis
Australian dollar: the good, the bad and the ugly
