- Forex today was seeing a firmer greenback.
- Markets relieved that US tariffs on Mexico have been postponed indefinitely.
Geopolitics were front and centre once again at the start of the week. Asia kicked off the risk-on mood and the European and US sessions fell in line. US stocks rallied, bond prices dropped and the dollar made a broad recovery, especially against the antipodeans – Both the Aussie and kiwi sank despite easing trade tension that saw sentiment improve in the market.
The ANZ China Commodity Index rose 0.2%, with the trade-sensitive industrial metals (+1.3%) the main driver, as analysts at ANZ Bank reported, adding, “Bulks and agriculture were also higher (0.5%). Energy failed to catch a ride (-0.8%), with oil prices under pressure on fears of weaker demand. The risk-on tone saw precious metals fall (-0.9%).”
For the near term, Washington’s decision to abandon tariffs on Mexico and various news that Trump is expected to meet with President Xi at the G20 Summit in Japan on 28-29 June and that a China deal is going to work out threw a lifeline to the greenback that has otherwise been suffering a dovish outlook from Fed speakers of late. Despite markets pricing in an 85% chance of a Fed fund rate cut by August, with a total of three cuts priced by May 2020, US 10yr treasury yields climbed from 2.12% to 2.14%, while 2yr yields ranged sideways between from 1.87% and 1.90%, still up from 1.85% Friday. Indeed, portfolio flows moved in droves towards USD denominated assets and an accumulative effect with a sell-off in bonds helped to support U.S. yields and the greenback higher – The market will likely begin to price out any urgent Fed cuts should trade worries subside.
Analysts at Westpac summarised the currency market from overnight:
- The US dollar is up against all G10 currencies so far this week, though only modestly versus EUR which steadied -0.2% at 1.1315.
- GBP/USD slipped -0.4% to 1.2680 as the race to be the next UK prime minister officially began.
- USD/JPY gapped higher Monday morning then broadly consolidated in the mid-108s.
- AUD/USD extended yesterday’s USD-led fall, from 0.6975 to around 0.6960. NZD was even weaker, -0.9% to 0.6605/10.
- AUD/NZD thus rose from a probe of 1.0500 to 1.0535.
Key notes from Wall Street:
Wall Street ends on a positive note; DJIA heads towards key 78.6% Fibo
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