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  • Dollar holds onto  the 97 handle despite a drop in US yields in risk-off markets.
  • Hundreds of flights from Hong Kong cancelled which weighed on risk sentiment.
  • Argentina markets collapsed as President Macri after he performed poorly in a primary vote ahead of elections later in the year.

Forex today was somewhat downbeat while  US markets went heavily offered as investors walked into a tidal wave of geopolitical risks which included demonstrations in Hong Kong and Italian political division as well as the collapse in Argentina equities. Of course, US trade-wars remain a concern and Brexit continues to play havoc in financial markets as well.  

Japan is back today, so it could make for further risk-off if Tokyo follows suit ahead of some key economic data releases out of Europa and the US, although starting closer to home, Australian NAB business conditions come first.  

The US benchmarks overnight were down over 1% and the Dollar likely attracted a safe-haven bid as it held territories on the 97 handle despite the US 2-year treasury yields falling from 1.63% to 1.58% and the 10-year yield dropping from 1.73% to 1.64% in negative correlation to US stock prices. As for the pricing for the Federal Reserve, ahead of this week’s Federal Open Market Committee minutes, markets were ‘pricing 32bp of easing at the 19 September Fed meeting’, according to analysts at Westpac.

Hong Kong protests take it up a notch:  

The protestors succeeded in closing Hong Kong airport overnight, one of the world’s busiest hubs, seeing hundreds of flights cancelled which weighed on risk sentiment as there seems no end to the demonstrations which if anything, are getting worse.

“These developments will increase tension with mainland China and damage the Hong Kong economy, with growing fears that the region will enter a recession. Meanwhile, data out of China showed weaker credit growth and falling producer prices, which along with the recent yuan depreciation, signals global deflationary pressure ahead,” analysts at ANZ Bank explained.  

Currency action:  

Analysts at Westpac offered a snapshot of the currency market’s action from overnight.  

  • EUR/USD bounced off 1.1162 to 1.1215, up slightly on the day. Italy is stepping closer to a vote of confidence in Conte as PM that may see the end of the current fragile 5 Star/League coalition. This may result in another coalition being formed, a caretaker technocrat government being appointed or flash elections. The last option is what Salvini wants, but he may be thwarted given the need for a budget to be passed in September. The rebound in the euro and sharp rally in Italian government bonds (10 year yield -11bp to 1.70%) indicates an expectation that a technocratic government is more likely.
  • GBP/USD recovered some of Friday’s steep decline, up half a cent to 1.2085.  
  • USD/JPY probed lower to 105.05 – a seven-month low. AUD/USD fell from 0.6790 to 0.6745 in the London morning, then stabilised in NY.  
  • NZD/USD was choppy but softer overall, -0.4% on the day at 0.6445.  
  • AUD/NZD lost a net 20 pips over the day at 1.0475.
  • Argentina markets collapsed as President Macri after he performed poorly in a primary vote ahead of elections later in the year. The peso closed -14.5%, the benchmark stock market -38%.

Key notes from Wall Street:

Wall Street bleeds out in risk-off environment, DJIA eyes 200-DMA

Key events ahead in Asia:

NAB July Australia business confidence survey takes the spotlight. “Expect domestic business confidence data to be a key catalyst today with downside risks to the AUD,” analysts at ANZ bank explained.