Analysts at Westpac explained that the US dollar made further broad gains, rising against all G10 currencies on a poor day for risk appetite with the 10 year Treasury yield falling to lowest levels since May.
Key Quotes:
“The global mood was largely downbeat, with most discussion on trade tensions. On the positive side was a headline in early NY trade that the US would not take the strongest measures against Chinese investment in the US. This saw USD/JPY pop from 109.95 to 110.35, with gains capped by softer US treasury yields. EUR/USD fell steadily, from 1.1670 to lows under 1.1550. GBP/USD was similarly weak, -0.8% over the day to just above 1.31.”
“AUD/USD squeezed above 0.7400 on the headlines over China investment in the US but soon rolled over and fell as far as 0.7324 in NY trade, the lowest since Jan 2017.”
“Underperformer NZD fell from 0.6840 to 0.6779 – the lowest since June 2016- and remained soft after the RBNZ kept its cash rate at 1.75% as fully expected but had some slightly dovish notes in the statement. Governor Orr reiterated that the next move in the cash rate could be up or down and said that the government’s fiscal spending plans were “slightly lower and later than anticipated.” AUD/NZD rose from 1.0820 to 1.0856 before retracing.”
“CAD slipped on a cautious speech by Bank of Canada governor Poloz who said at the next policy decision, US tariffs on Canadian steel and aluminium as well as Canada’s retaliation would “figure prominently. USD/CAD bounced from 1.3305 to highs above 1.3380 but then faded with help from rising oil prices.”
“US data seemed to have little impact. The advance US goods trade deficit narrowed by more than expected in May, to $64.8bn from $67.3bn, a nine month low, further boosting already lofty expectations for a solid 3%+ annualised Q2 growth rate. Against that, the notoriously volatile durable goods orders report was unexpectedly weak in May: core capital goods, a closely watched proxy for business spending plans, fell 0.2%, below expectations for a 0.5% gain, though a hefty upward revision to +2.3% from +1.0% in the prior month was an offsetting positive. Pending existing home sales fell 0.5% in May, a second consecutive monthly decline and the fifth straight decline in annual terms.”
“The US 10yr treasury yield fell from 2.88% to 2.82% – the lowest in a month – as US equities closed near their session lows. 2yr yields fell from 2.54% to 2.50%. Fed fund futures yields continued to price 1 ½ more hikes in 2018. Fed governor Quarles said there is a “tariff dispute” rather than a “trade war”, with limited economic consequences at this stage.”
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