- A slight return of risk appetite sees Dollar mixed.
- Risk appetite on a knifes edge and trade wars remain in focus.
Forex today was seeing a slight return of risk appetite in the FX space. The Greenback was changing hands 97.74/46, with bulls stepping in on the downside on a rejection of a spike in the DXY. The US 2-yearr treasury yields rose from 1.59% to 1.62% while the 10’s touched 1.79%in a recovery before sliding back to 1.72%. “Markets are pricing 29bp of easing at the 19 September Fed meeting, and a terminal rate of 1.01% (Fed funds rate currently 2.13%),” according to analysts at Wetpac.
The mood was a little more positive in FX overnight with the Chinese data impressing with a surprise lift in exports, despite the trade war spat between the US and China. Stronger than expected trade data from China helped alleviate market concerns of slowing global trade. “China export data was strong with the value of July exports up 3.3% y/y in USD terms. Import data was better than expected, falling 5.6% y/y. Annual growth in China’s imports has been negative every month this year except April,” analysts at ANZBank explained. As for US data, the number of initial claims from those jobless in the US fell to 209k vs estimates of 215k. “The number of people continuing to make claims were down from 1699k to 1684k and also below expectations. This stronger unemployment data may make it more difficult for the Fed to justify further interest rate cuts but is unlikely to outweigh their inflationary concerns,” the analysts at ANZ added.
Meanwhile, on the geopolitical front, the main driver of the price swings so far this week, (besides the RBNZ), came from another tweet from President Trump saying that he is not thrilled by “our very strong dollar”.
Trump was calling for “substantial Fed Cuts” to help US companies compete. Also, in Bloomberg headlines, there was a report claiming that the White House was delaying a decision on allowing US companies to resume business with Huawei, in apparent response to China halting purchases of US agricultural products. Later in the day, at the start of early Asia, there was a rumour that the White House was considering ending china talks, sanctions if Beijing commits hong kong protest crackdown. There was no major data to report. The Atlanta Fed’s GDP prediction model projected a 1.95% growth rate for Q3, little changed from the 1.94% on 1 August.
Currency action:
“AUD/USD had a relatively quiet day, dipping to its session low of 0.6746 as USD/CNY was fixed above 7.00 for the first time in 10 years but spending most of the afternoon around 0.6770/80 as risk appetite improved. The ASX 200’s 0.75% gain was fairly typical of the region.
EUR/USD ranged sideways between 1.1180 and 1.1230, choppy at times. Italy’s deputy PM Salvini declared that the coalition government no longer holds a majority and called for elections, in which he hopes to become PM. The 10 year Italian government bond yield jumped 12bp while German bund yields rose just 2bp.
USD/JPY drifted sideways around 106.00 in NY trade but then slipped to 105.75 on Bloomberg headlines claiming that the White House was delaying a decision on allowing US companies to resume business with Huawei, in apparent response to China halting purchases of US agricultural products.
AUD/USD extended yesterday’s rally from 0.6780 to 0.6822 in London as equities bounced but was back to 0.6785 on the Huawei headlines in early Sydney trade. NZD/USD similarly rose from 0.6450 to 0.6492 then back to 0.6470. AUD/NZD probed higher in London but was back to 1.0490 by Sydney morning trade, about flat over the day” –
– Analysts at Westpac wrote.
Key notes from Wall Street:
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Wall Street finds a bid again across the benchmarks, but markets fragile
The Asia day ahead:
We are wating for the RBA governor who is so far…late.
“RBA governor Lowe appears before the House of Representatives’ Standing Committee on Economics in Canberra from 9:30am Syd. He will deliver a prepared text and – along with colleagues – answer politicians’ questions for about 3 hours. Presumably this will include references to the RBNZ’s aggressive stance and whether the RBA is considering QE.
The RBA also releases its quarterly Statement on Monetary Policy at 11:30am Syd. Tuesday’s brief statement indicated fairly modest changes compared to May. The RBA’s “central scenario is for the Australian economy to grow by around 2 ½ per cent over 2019 and 2 ¾ per cent over 2020.” Inflation is expected to take longer to return to target, “a little under 2 per cent over 2020 and a little above 2 per cent over 2021,”
Analysts at Westpac explained.
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