Forex today: Aussie hit hard, dollar firmer on a number of components

• Forex today was kinder to the dollar that rallied across the board on the back of a number of components to the resurgence.
• On the fundamental front, the ECB sent the euro lower where accommodation is still seen to be needed.

At the same time, Trump’s deal with the EU has given the US the upper hand and the Chinese currency was in decline as traders speculate the trade tensions are about to escalate between Beijing and Washington.  

The DXY rose within a range between 94.0840-94.7950. US yields were firmer with the 2-yr yield climbing to the highest in ten years with the odds of a fourth hike from the Fed back in as a prominent theme in the markets currently. However, the US 10yr treasury yields held around 2.96% with Fed fund futures holding steady. From the data, the dollar was unphased by the disappointments in Durable goods orders that rose by 1.0% in June and well short of the market consensus for a 3.0% advance. Jobless claims also rose to 217k with 215k expected.  

Currency action

The single currency was barely impacted by the ECB initially but it gave out to the bears in the NY session and fell from 1.1740 towards 1.1650, below the 10 & 21-DMAs making for a bearish bias on a technical basis. Draghi says reinvestment not discussed and no need to modify rates guidance, reaffirming that rates will be on hold through summer of 2019. Sterling was on the back foot after Bloomberg came with a report that EU’s Barnier said that “the EU cannot delegate the application of its customs policy and rules, VAT and excise duty collections to a non-member who would not be subject to the EU’s governance structures”. At the same time, Brexit fears were in focus which also weighed although the BoE hike expected on Aug 2 which is seen as one-and-done event that adds some fragile support to the pound. The cross was ending the NY session at 0.8880 -0.13%. USD/JPY was showing signs that its six-day correction of the uptrend was ending back above 1.1100, where the price managed to hold above the 55-DMA (110.52), a familiar area of support in May and June. As for the Aussie, it was smashed lower on the back of a stronger dollar, weaker Chinese prospects and currency. However, commodities were mixed due to higher oil. Metals were a weight, with copper meeting strong supply. AUD/USD slide from its 0.7460 high towards 0.7375 with techs leaning bearish again where the 10 & 21-DMAs were pierced and RSIs biased to the downside again.

Key notes from the US shift:

Wall Street closes mixed as tech fall offsets trade optimism

Key events ahead:

Analysts at Westpac noted the key events ahead as follows: “With CPI and import/ export prices released earlier in the week, today’s Australian Q2 PPI will not be a market focus. However, it may be impacted by energy prices and the pullback in AUD, 1Q printed +0.5%q/q

In New Zealand, we have July consumer confidence. Confidence has been volatile since the election but has had a cooling trend into mid-2018 and slipped -0.8%m/m in June.

The major focus for the day will be US Q2 GDP and the 1st estimate is expected to rise by a 4.2% annualised pace following Q1’s +2.0%. A strong number is likely well factored in – NEC head Larry Kudlow noted on Fox Business that “you’re going to get a very good economic growth number  tomorrow, big” though he declined to speculate on the detail.

Westpac’s forecast is in line with consensus as trade and government spending are seen to be strong positives while investment and consumption also provide material support.”