- USD/JPY in the limelight as trade war angst continues to dominate the headlines.
- The Kiwi was the underperformer again, dropping from 0.6840 to 0.6779 and the lowest level since May 2016.
- DXY best close in a year/Atlanta Fed model sees Q2 at 4.5%)
FX today was yet again putting USD/JPY in the limelight as trade war angst continues to dominate the headlines, driving investors to the sidelines at times of negatively, favouring the yen, or driving the yen lower on any signs of potential relief in the tit for tat spat between the United States and major trade partners, such as China and the EU.
The dollar was the outperformer, although its advance was tempered by US yields dropping, notably in the benchmark US 10yr treasury yield that fell from 2.88% to 2.82% – the lowest since May, (risk-off markets see higher bond prices with eyes on China’s potential meltdown).
The DXY was trading at the higher end of the 94.5260-95.4170 range, (DXY best close in a year/Atlanta Fed model sees Q2 at 4.5%), and the single unit traded as low as 1.1540, extending its decline from 1.1720 25th June highs while the Fed’s fund futures yield continues to price 1 ½ more hikes in 2018.
Currency action
Al in all, the EUR/USD was a steady decline while the financial sector remains fragile with Deutsche Bank down to new lows. The EU Summit is starting today and will be continuing into the close of the week which has a negative tone surrounding the euro as well. the positive twist in CFIUS risk also supports the dollar with the Trump administration clarifying foreign investment policy as sounding less onerous. However, the relief was short lived when Larry Kudlow stated that the Trump administration had not softened its stance on China, spinning back comments on the heels from other officials. EUR/USD ended the NY session at 1.1553.
Cable remains on the backfoot after investors get set for a dovish replacement to McCafferty in September with much depending on how the UK economy performs between now and August MPC meeting, McCafferty’s last before BoE’s Haskel, (uber dove), steps in. GBP/USD ended the North America day at 1.3112, having made a low of 1.3106, just above the 2018 low of 1.3101 scored the previous day. (Cable traded in a NY range of 1.3256-1.3192). As for the cross, EUR/GBP ended the day at 0.8816 and modestly higher by +0.05%, within the North American range of between 0.8802-0.8822; once again capped by the 21-DMA at 0.8821. USD/JPY popped through the 200-D SMA from just below the 110 handle and made a high of 110.48. Dollar-denominated flows into treasuries kept the bid alive, coupled with the CFIUS relief left bulls in control around the 200-D SMA or the best part of the NY session.
As for the commodity sector, the prospect of China slowing weighed heavily. USD/CAD was sent higher on Poloz speaking with too many uncertainties around trade, (US tariffs on Canadian steel and aluminium), to bring in any demand for the Loonie. The Aussie was supported in a squeeze on the CFIUS relief, but that was shortlived. AUD/USD did make a London high of 0.7407 but dropped to 0.7325 and the lowest since January 2017. The Kiwi was the underperformer again, dropping from 0.6840 to 0.6779 and the lowest level since May 2016 on a more dovish rhetoric in the RBNZ’s one-page statement that accompanied their dovish hold today.
Key events from US session and early Asia:
- NZD/USD dropped to lowest level since May 2016 with a more dovish outcome from the RBNZ holding rates
- Wall Street closes in red as trade uncertainty drag tech shares lower
Key events ahead:
“There is little data of note in Asia either, but there will be close attention to the USD/CNY fixing, after another day of yuan depreciation exceeding most Asian currencies,” explained analysts at Westpac.
Share
