AUD rebounds, USD/Asia-EMFX slump, stocks lift

Summary

The Japanese Yen lifted against the US Dollar on a short squeeze as speculators ran for cover. At the close of trade in New York, the USD/JPY tumbled 0.7% to 140.35 (141.35 yesterday). Barely two weeks ago, the Dollar hit a high of 144.90 Yen. Just another riveting day in FX.

A favored gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) fell to 101.67, down from yesterday’s open at 101.92.

Sterling (GBP/USD), outperformed, soaring 0.55% against the Greenback to 1.2930 from 1.2867. UK Wages jumped to 6.8% from 6.5% previously, increasing expectations that the Bank of England (BOE) will need to raise interest rates further. UK bond yields rose.

The Euro (EUR/USD) edged higher to 1.1007 from yesterday’s open at 1.1002. The shared currency traded jumped to 1.1027 overnight high before easing at the New York close.

The Australian Dollar (AUD/USD) rallied against the broadly based weaker Greenback to finish at 0.6690 from 0.6670 yesterday. The Aussie Battler failed to clear the 0.6700 threshold though.

Asian and Emerging Market currencies rallied strongly against the US Dollar after China’s Central Bank, the PBOC fixed the Greenback lower against the Yuan to 7.1886 against expectations of 7.2152.

It was a surprise move which was not expected by markets.

Against the Thai Baht, the US Dollar (USD/THB) tumbled to 34.75 from 35.00 yesterday.

The USD/SGD (US Dollar-Singapore Dollar) slid to 1.3410 from 1.3440.

The USD/INR pair (Dollar-Indian Rupee) dropped to 82.40 from 82.70 yesterday.

The benchmark US 10-year treasury bond yield fell 3 basis points to 3.97% from 4% yesterday.

In contrast, other global ten-year rates rose. The UK 10-year Gilt yield climbed to 4.65% (4.63%).

Other economic data released yesterday saw Australia’s Westpac Bank Consumer Confidence climb to 2.7%, up from 0.2% previously. The UK June Unemployment Rate climbed to 4% from 3.8%.

Germany’s ZEW Economic Sentiment Index fell to -14.7 from -10.0 previously, and lower than expectations at -10.2. Italy’s June Industrial Production rose 1.6%, up from May’s -1.9% fall.

USD/JPY – In another volatile trading session, the Dollar plummeted to an overnight low at 140.12 from its open at 141.35 before climbing to settle at 140.35 in late New York. The overnight high traded was 141.46. A lower US 10-year bond yield weighed on the Greenback.

GBP/USD – The British Pound soared to an overnight high at 1.2935 after opening yesterday at 1.2867. The strong rise in UK Wages increased the chances of further interest rate hikes from the Bank of England. The overnight low recorded was 1.2858.

AUD/USD – The Aussie Battler rallied to close at 0.6690 from 0.6670 yesterday. The overnight high traded was at 0.6695 while the overnight low recorded was 0.6651. The Australian Dollar failed to clear the 0.6700 resistance level despite the overall weaker Greenback.

EUR/USD – A generally weaker US Dollar supported the shared currency which closed at 1.1007, up from 1.1002 yesterday. Overnight the Euro ratcheted to a high at 1.1027 before easing at the close. In more subdued trade, the overnight low recorded was 1.0977.

On the lookout

New Zealand kicked off today’s data releases with its June Visitor Arrivals, which slumped -27.5% from May’s -16.9%.

The Kiwi (NZD/USD) was little changed, at 0.6200 following the release.

Japan follows next with its May Machinery Orders (m/m f/c 1% from 5.5%; y/y f/c -0.2% from -5.9% – ACY Finlogix), and Japanese June PPI (m/m f/c 0.1% from -0.7%; y/y f/c 4.3% from 5.1% – ACY Finlogix).

The RBNZ (Reserve Bank of New Zealand) is not expected to change its Overnight Cash Rate of 5.5% at the conclusion of its monetary policy meeting (12 noon, Sydney, 12 July).

RBA Governor Philip Lowe is scheduled to speak at a business lunch in Brisbane on the Reserve Bank’s Review and Monetary Policy (1.10 pm Sydney, 12 July).

The RBA Governor will likely be replaced following this meeting by Australian treasurer Jim Chalmers.

The Bank of England releases its UK Financial Stability report (4 pm Sydney).

BOE Governor Philip Bailey will hold a press conference about the Financial Stability report after it’s release.

The US rounds up today’s data releases with its June CPI report.

Forecasts are for US June Headline CPI (m/m f/c 0.3% from 0.1%; y/y f/c 3.1% from 4.0% – ACY Finlogix).

US June Core CPI (m/m f/c 0.3% from 0.4%; y/y f/c 5% from 5.3% – ACY Finlogix).

US Federal Reserve President Neel Kashkari, a noted hawk, is scheduled to speak in a conference on monetary policy in Massachusetts, USA.

The Bank of Canada (BOC) is expected to increase its Overnight Rate to 5% from 4.75% at the conclusion of its meeting early tomorrow morning (Thursday 13 July, 12 midnight Sydney).

The BOC will follow with a press conference after the announcement.

Trading perspective

The Dollar continued to lose ground following a drop in US treasury yields as well as demand for other currencies on short covering.

Traders will be focusing on the US June CPI report, released later today.

Markets will also be watching the PBOC (People’s Bank of China) today, to see where the Dollar-Chinese Yuan will be fixed.

Expect the Dollar to remain under pressure initially in Asia today.

The US Inflation report (CPI) will also impact the Dollar. Economists’ forecasts are for a lower number, which if realized, will weigh on the Greenback.

That said, the DXY tumbled to 101.65 from 103.57 highs on 7 July, just 5 days ago.

Expect the USD/DXY to consolidate at current levels, with a possibility of a rebound heading into today’s US CPI report.

USD/JPY – Volatility in trading this currency pair has truly returned. Happy days! For today, look for immediate resistance at 140.80 followed by 141.30 and 141.80. On the downside, look for immediate support at 140.10 (overnight low 140.12). The next support level lies at 139.80 and 139.50. More broad-based US Dollar weakness could see the USD/JPY break back down through the 140 level. For today though, am looking at a likely range of 140.00-141.20.

(Source: Finlogix.com)

GBP/USD – Sterling also had a choppy trading day, opening at 1.2860 before climbing to 1.2935 overnight high. The GBP/USD pair settled at 1.2930 in late New York. On the day, immediate resistance lies at 1.2935 followed by 1.2985. Immediate support lies at 1.2890, 1.2860 and 1.2830. Look for more volatile trading in Sterling today, likely between 1.2850-1.2950. Trade the range, nice and wide.

AUD/USD – The Aussie Battler rallied against the broadly based weaker Greenback, closing at 0.6690 against 0.6670. For today look of immediate resistance at 0.6700. A clean break of 0.6700 should yield 0.6740, followed by 0.6780. On the downside, look for immediate support at 0.6650 (overnight low traded was 0.6651). The next support level lies at 0.6610 and 0.6580. Look for a likely trading range of 0.6630 to 0.6730 today. Trade the range.

EUR/USD – Trading in the Euro was more subdued than that of the other currencies. The shared currency closed at 1.1007 (1.1002 yesterday). Look for immediate resistance at 1.1030 followed by 1.1060. Immediate support can be found at 1.0980 (overnight low traded was 1.0977). The next support level lies at 1.0950 followed by 1.0920. Look for the Euro to trade in a likely range today of 1.0950-1.1050. Prefer to sell Euro rallies.