- Forex today was a slow summer vacation time type of trade in the NY session. The DXY was offered in NY having made 2018 highs in European trade.
- US/China trade tensions were the key theme once again while the Middle East moved to the fore as well.
The US dollar was trading between a day’s range of 95.1990-95.5150, the high being made in the latter part of the European session. As for Yields, the US 10yr treasury yields moved beyond the previous day’s decline, from 2.96% to 2.94% and the 2yr yields ranged sideways between 2.64% and 2.66%. The Fed fund futures yields were pricing in almost two more full hikes in 2018.
Donald Trump’s Weekend Tweets when he said that American tariffs are “working far better than anyone ever anticipated were actually met with concerns by economists and traders given that the tit for tat standoff does could be harmful to the global economy in the long run. Markets were subsequently risk-off to start the day in European markets.
China, on Friday, threatened to place tariffs on $60 billion of American goods if the White House went ahead and imposed the new proposed levies on Chinese products. Indeed, in an article read in China’s Global Times newspaper, the author wrote that Beijing is ready to dig in for a “protracted war” with the U.S. over trade. However, US stocks were more positive than over in European trade.
Currency action
As for the euro, ignoring the German manufacturing orders fell -4.0% in June (vs -0.5% expected), taking the annual rate down to -0.8%, the first negative reading since July 2016, it dropped from 1.1570 to 1.1530 for the worst level since 28 June. The single unit then went on to recover some ground after being on a 1.1500 cliff edge, and met 1.1570 in early NY, before drifting to 1.1553 for the NY close. Sterling was no sight for sore eyes, ending NY a 1.2938, -0.52% within an NY range of between 1.2920/51 while political angst over a no Brexit deal weighed heavily in European trade where the pair fell from the 1.30 handle to the aforementioned lows. As for the cross, EUR/GBP ended higher by +0.41% at 0.8933 due to the Brexit angst favouring the euro leg and traded within a range of between 0.8936-0.8893 – also, the BoE’s dovish guidance continues to weigh on the pound leg of the cross. USD/JPY was better bid in NY following a risk-off session in European trade. The pair climbed slightly to 111.40 and held in a tight 37 pip range above Friday’s 111.11 low. there needs to be a pick up in US yields that were subdued on Monday and political headlines will steer the course of the pair this week, probably until US CPI hits the screens on Friday. As for the commodities, the Aussie was under pressure due to the Chinese / US trade spat and indeed while the Yuan was losing value as well which is a negative input for the commodity sector as a whole, although being buoyed on Monday by the surge in oil for now. The focus will turn tot he RBA’s statement in Asia on Tuesday (today) where the SOMP from on August 10 will give the latest RBA views on growth and inflation. meanwhile, the Aussie was testing to a low of 0.7374 and closed NY at 0.7386. NZD dropped from 0.6755 to 0.6725 before consolidating.
Key notes from US session:
Wall Street ends choppy session modestly higher
Key events ahead in Asia:
Analysts at Westpac noted that Australia’s data calendar is light this week, leaving the focus on a very busy week for the RBA:
“Today at 2:30pm Syd/12:30pm Sing/HK we see the statement following the monthly Board meeting. With markets pricing 0% chance of a move in the cash rate until 2019, the attention is once again on the wording of the statement, including whether there is guidance on what to expect from Friday’s quarterly Statement on Monetary Policy. Today’s statement seems unlikely to include anything dramatic enough to have a lasting impact on AUD.”
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