Home Finding dollar strength

USD: New home sales data seen rising 1.7% after 2.1% gain in the previous month. The series has continued to show an improving trend of late and stronger data could well add to the firmer dollar tone see earlier today. See how to trade the US new home sales with USD/JPY.

NZD: New Zealand interest rate decision at 21:00 GMT this evening. Rates have held at 2.5% and the central bank has indicated that expects it to remain here for the rest of the year.   They also viewed the NZD as overvalued in last month’s statement.

Idea of the Day

Before the modest recovery in Asia on the back of weaker PMI data in China, the dollar found itself at a 5 week low on the dollar index. EURUSD was at levels last seen 21st June, whilst the Aussie was at levels last seen 27th June, before CPI data sucked the steam from the rally. At the start of July, the sense was that everything was set fair, the US heading for the withdrawal of stimulus, whilst Europe was biased towards easier monetary policy.   But it seems that policy makers have reminded us that things are never that simple. The US central bank has stressed that ‘tapering’ is not a done deal, whilst the UK has chosen to signal that rates are not rising, but more QE is not yet on the way.   Ultimately, the diverging policy trends will take hold between the US and Europe, but for now it could be a rougher ride over the summer and a longer road to a stronger dollar.

Latest FX News

AUD: The quarterly inflation data coming in a touch softer than expected at 2.4% (from 2.5%), which took some of the shine from the Aussie overnight, although this was not before AUDUSD has managed to make a near 1-month high at 0.9319 in the volatility seen after the release.

USD:  Tentatively firmer during the Asia session.   The dollar index touched the lowest level for 5 weeks just below the 82.00 level before recovering later on.   As we’ve mentioned before, there are signs that the dollar is more sensitive to data right now as there is still all to play for in terms of whether the Fed starts to tail back bond purchases as early as September.

EUR: Some buying seen late into the NY session yesterday saw EURUSD push a high at 1.3239 before tapering off a touch on a generally firmer dollar in Asia.

Update:  German PMIs both positive – EUR/USD breaks to new highs, approaches important resistance

CNY: The HSBC (flash) manufacturing series was only slightly weaker than expected at 47.7, the market anticipating a steady outcome at 48.2, but it was sufficient to take the edge off stocks and give a modest lift to the dollar.   CNY steady at 6.1375.

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