Forex today left the antipodeans bleeding following a strong Dollar on the back of the trade ceasefire. The DXY rallied form 96.25 to a high of 96.87 leaving the recent swing low in the 95.80s in the rearview mirror. Indeed, the bounce in equities in Asia yesterday transpired throughout European and U.S. markets which sunk the Aussie ahead of today’s RBA meeting whereby a rate cut has already been priced in, to some extent.
Meanwhile, risk appetite was favourable overnight which took the U.S. benchmarks and US yields higher, supporting the greenback which garnered further demand on positive data:
“The US manufacturing ISM survey for June encouragingly fell less than expected – to 51.7 from 52.1 – thanks to firmer production and employment sub-indices, but the key forward-looking new orders sub-index stalled to a 3 ½ year low of 50.0. Markit’s manufacturing PMI was revised a touch higher to 50.6 from a preliminary estimate of 50.1. But US construction spending disappointed in May with a decline of 0.8% in the month, both residential and non-residential output posting declines. The Atlanta Fed Q2 GDPNow forecast was trimmed to a 1.47% growth pace,”
analysts at Westpac explained.
As for US yields, the 10-year yields ranged between 2.00% and 2.05%, about 2bp higher net. The 2-year treasury yields held at around 1.78% versus 1.75% Friday, while
As for price action in FX, the analysts at Westpac summed up as follows:
“The US dollar is up against all G10 currencies on the day, helped by a bounce in yields after the US-China trade truce and by the relative outperformance of US vs global PMIs. EUR/USD fell from 1.1360 to 1.1280, with dovish ECB comments from new chief economist Lane contributing.
USD/JPY extended its Sydney session rally to around 108.50, up 0.6% on the day. AUD/USD performed poorly ahead of today’s RBA decision, falling from 0.7030 early Sydney to 0.6990 then lower again in NY, to just under 0.6960. NZD/USD also reversed sharply, falling from 0.6720 to 0.6665. AUD/NZD continued to probe lower, touching 1.0427 – a three-month low.”
Key notes from Wall Street:
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Wall Street rallies on ceasefire news and dialling down of Fed cut notions
Key events ahead:
The RBA Board meets and the monetary policy decision will be announced at 2.30pm AEST. “We expect a 0.25% cut in the cash rate,” analysts at ANZ Bank explained. There will also be a speech from Governor Lowe at the RBA Board dinner with the business community in Darwin at 7.30pm AEST.
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