Asia-Pacific markets showed cautious optimism early Monday, continuing the positive momentum from Friday's U.S. job data. However, the mood lacked strength due to other risk-negative headlines and uncertainty ahead of major events this week. Japan’s Prime Minister Shigeru Ishiba resigned after facing pressure following his loss in the July elections, and OPEC announced a smaller-than-expected supply increase. News about China, Russia, and U.S. President Donald Trump also added to market focus.
On Friday, the U.S. August employment report was disappointing, with weaker-than-expected Nonfarm Payrolls (NFP), a higher unemployment rate, and mixed wage growth. These factors support a September Federal Reserve rate hike and increase the likelihood of two additional 0.25% hikes by the Fed before the end of the year. This caused the U.S. Dollar to weaken, benefiting risk assets like equities and cryptocurrencies. However, both equities and crypto pared back their gains to close the week with overall growth.
President Trump made notable comments on the Russia-Ukraine conflict, expressing dissatisfaction and hinting at talks with Russian President Vladimir Putin soon. He also warned foreign companies to respect U.S. immigration laws after an investigation at a Hyundai plant. Meanwhile, Trump’s potential nominee for the Federal Reserve chair, Kevin Hassett, stressed that the central bank must remain independent of political influence, including from the White House.
In China, the People’s Bank of China increased its gold reserves for the 10th consecutive month in August, continuing its efforts to diversify away from the U.S. Dollar. China also announced it would reopen its bond market to Russian energy companies. August saw a significant increase in China’s exports and imports, which boosted its trade balance and benefited the Australian and New Zealand dollars. However, data from Citibank showed that container ship departures from China to the U.S. continued to decline, down 24.9% year-on-year as of September 3.
China’s President Xi Jinping will attend a virtual BRICS summit hosted by Brazil on September 8. Xi is expected to deliver a key speech on U.S. trade policies, with Russian President Vladimir Putin also participating. India’s Prime Minister Narendra Modi will send a senior representative in his place.
In Japan, preparations are underway for a leadership vote within the ruling Liberal Democratic Party (LDP) on October 4. Prime Minister Shigeru Ishiba announced his resignation over the weekend after the LDP's poor showing in the July elections. The resignation lifted some pressure on domestic equities, while the Japanese yen opened lower. Japan’s Q2 GDP was revised higher to 2.2%, marking the fifth straight quarter of growth. The Topix index has risen to its highest level ever, while Q2 GDP growth came in at +0.5% quarter-on-quarter, up from the preliminary figure of +0.3%.
In the UK, pay settlements hit their lowest level since 2021, with both hiring and wages weakening. Elsewhere, OPEC+ agreed to raise oil production by 137,000 barrels per day in October, though at a slower pace. Saudi Arabia has prioritized market share over price stability, starting to unwind some of the earlier production cuts. The OPEC+ move marks the beginning of a gradual return from the larger 1.65 million barrels per day reduction earlier this year.
The U.S. Dollar remains under pressure, trading at a six-week low, while the Euro struggles amid fears ahead of a no-confidence vote in France’s Prime Minister. GBP/USD is also weak, impacted by weak wage data from the UK. Meanwhile, USD/JPY initially surged but retreated, and the Australian and New Zealand dollars remain stronger. The Canadian dollar (USD/CAD) lacks a clear direction after a five-day uptrend.
Gold eased from its recent all-time high, while crude oil snapped a three-day losing streak, bouncing off the lowest level in three weeks. In the cryptocurrency space, Bitcoin (BTC) and Ethereum (ETH) struggled to maintain their Friday gains, as El Salvador diversified its reserves by purchasing gold after 10 months. China is also exploring an offshore RMB stablecoin to support the internationalization of the yuan, while pro-crypto companies continue to diversify their holdings beyond just BTC and ETH.
EURUSD remains under pressure ahead of today’s French no-confidence vote in the Prime Minister and Thursday’s European Central Bank (ECB) meeting, as well as the U.S. Consumer Price Index (CPI) report. However, a softer U.S. Dollar has limited the recent movement in the Euro.
Similarly, GBPUSD has drifted lower after Friday’s positive session, as weaker UK wages raised concerns over employment and the broader economy. This has reduced the likelihood of tighter policy from the Bank of England, which has been trying to avoid such a move recently.
USDJPY started the week on a positive note, fueled by expectations that Japan’s new Prime Minister may adopt a more dovish Bank of Japan stance. However, a likely uncertainty ahead of the selection and strong revisions to Japan’s Q2 GDP, marking the 10th consecutive quarter of growth, along with government intervention in the bond market, have challenged JPY sellers.
China made several key moves this week, including a positive trade balance, easing restrictions on home buying, and continuing its push to buy more gold as part of its strategy to diversify away from the U.S. Dollar. Additionally, China is preparing to criticize U.S. trade policies at today’s virtual BRICS summit. With this, despite having limited domestic catalysts, the Australian and New Zealand dollars remained firmer. Meanwhile, USDCAD stalled its five-day winning streak as a rebound in Canada’s key export, crude oil, helped offset the impact of Friday’s weak Canadian employment data.
OPEC+ will increase production by 137,000 barrels per day from October, a significant slowdown compared to the larger monthly hikes of around 555,000 bpd in September and August, and 411,000 bpd in July and June. This decision came alongside the possibility of more sanctions on Russian crude following an overnight strike on Ukraine, which helped trigger a rebound in oil prices. However, rising oil inventories and concerns over reduced demand, fueled by Trump’s push for more domestic oil drilling and the potential return of Russian oil to the market if a Russia-Ukraine peace deal is reached, continue to challenge the bullish outlook for energy prices.
Gold has retreated from its record high of around $3,600, despite increased buying from El Salvador and China. This pullback seems to be a healthy consolidation after last week's impressive rally, which marked the biggest surge since mid-May.
Meanwhile, Bitcoin (BTC) faces challenges from concerns over a potential slowdown in institutional ETF buying, technical corrections, and lingering geopolitical fears, despite reporting its first weekly gain in four. Ethereum (ETH) remains under pressure for the second consecutive week, continuing its pullback from the all-time high, as it consolidates after a strong rise in August.
Although the economic calendar is light, with only Germany’s August Industrial Production and the EU’s September Sentix Investor Confidence on the agenda, the start of the virtual BRICS summit and the French no-confidence vote are likely to keep traders on edge.
Additionally, a cautious mood ahead of Tuesday’s Apple event, Thursday’s ECB meeting, U.S. CPI data, and this week’s U.S. earnings reports could dampen market optimism and weigh on risk assets, allowing the U.S. Dollar to recover some of last week’s losses.
This could challenge crude oil buyers and pull gold further away from its all-time high, while also limiting cryptocurrency movements.
As a result, EURUSD and GBPUSD are likely to remain under pressure, but USDJPY might drift lower due to its traditional safe-haven status. The Antipodean currencies could maintain their recent strength, supported by news from China, unless the U.S. Dollar strengthens sharply. Meanwhile, equities could edge lower.
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