- Forex today was a better place for the commodity complex following a risk on session in Asia where Shanghai shares were up 2.7 pct making for the biggest gain since May 2016 and the CSI300 gained 2.92 pct, (biggest gain since August 2016).
- The moves in Asia were following a heavy four-day selloff, as investors picked up shredded stocks. The Yuan was also a firmer fix and this leant some support to the Aussie, (not so much the Kiwi ahead of the RBNZ this week).
- AUD/USD staged a come back as far as 0.7440 with a little aid from PBoC showing little tolerance for further yuan decline – look out for Nomura’s model’s projection for today’s fix in USD/CNY – news-wire sources are claiming that the PBOC will protect USD/CNY from breaking through 7.00.
Meanwhile, the US dollar dropped modestly and was heavy through the European session, (while the offshore Yuan extended its rally in London and NY trade, from about 6.87 to 6.82), although picked up a bid in NY and the DXY rallied back to the highs within the following day’s range: 94.9940-95.3680. The move was supported by the US 10yr treasury yields rising from 2.94% to 2.97% while the 2yr yields climbed from 2.65% to 2.67% – The Fed fund futures yields are pricing in almost two more full hikes in 2018 which underpins the dollar on the central bank divergences.
Currency action
The euro was climbing from the danger zone at 1.1555 where a risk to barrier support is otherwise located down at 1.15 the figure and eventually made a high to 1.1608 by late European markets. However, the pair sank back to 1.1581 in NY in a resurgence in the greenback ad US yields. (bund yields heavy – wider DE-US yield spreads), the single unit closed at 1.1598 in NY. It will not be too long that the German downside data surprise will remind traders of that the eurozone economy is slowing and the ECB is still way off from playing catch up. (The German Jun Industrial Output for M/M arrived at a miss of -0.9% vs -0.5% expected and against the 2.6% prior, (2.4% revised).
As for sterling, it was a choppy day and the pair ended up flat overall after threatening 1.2975 in early European trade courtesy of supply in the greenback. Ears are left to the ground for further Brexit noise which is likely to be the dominating factor now that both the Fed and BoE have come very clear with their positions. GBP/USD closed at 1.2938 – not far of the YTD lows and technicals are aligned strongly bearish still. As for the cross, there was some volatility on the hourly sticks with the pair falling away from the 0.8965 highs down to 0.8942 before catching a bid again in early Asia. The pair has otherwise been on a steady climb from 0.8923 European lows.
USD/JPY dropped from 111.35 to 111 the figure and then reversed back to 111.47 the NY high for a close of 111.37 in NY. The yen was bid despite a positive performance in the European session, tracking the dollar’s decline on the move in the Yuan. AUD/USD’ shorts were squeezed during the ascent to threaten the August st high at 0.7429 as a proxy to the Chinese headlines as something more liquid for traders to get involved with – worth nothing that the IMM show that there is a net AUD short position which is the largest since Nov 2015 leaving risk to the upside on spikes like witnessed in Asia yesterday. The air closed NY at 0.7419. However, the US-China trade tensions and AU/US yield spreads should temper AUD/USD rallies.
Key notes from US session:
Wall Street records solid gains boosted by energy and financials
Key events ahead:
Analysts at Westpac explained their outlook for the key events ahead:
- Australian June housing finance approvals (11:30am Syd/9:30am Sing/HK) should show a flat to slightly lower headline reading (Westpac -1%,median 0%), with auction and price data pointing to a softer outcome than May’s surprising 1.1% gain.
- RBA governor Lowe speaks on “Demographic Change and Recent Monetary Policy” at the annual Anika Foundation charity lunch in Sydney. The text is due at 1:05pmSyd/11:05am Sing/HK, with a Q&A session after the speech.
- The RBNZ’s quarterly inflation survey occasionally has an impact on the kiwi (1pmSyd/11am Sing/HK). The Q2 reading on 2 year expectations was 2.01%. NZD should be wary ahead of tomorrow’s RBNZ statement.
- China’s June trade surplus of $41.6bn was the largest since Dec 2017. Consensus is for only a modest pullback in July, to around $39bn, driven by slightly faster import growth (16.5%yr) and a touch slower export growth (10%yr).
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