Forex today saw greenback trade on the defensive in Asia despite new multi-year highs in the US treasury yields.
The 10-year US Treasury yield rose to 3.252 percent – the highest level since May 2011. Meanwhile, the yield on the 30-year note rose to a fresh four-year high of 3.4302 percent in Asia.
More importantly, the spread between the 30-year yield and the 5-year yield 35 basis points, the highest level since May 29. The difference between the 10-year and the 2-year yield also rose to 36.35 basis points, the highest since June 20.
Still, the greenback failed to pick up a bid. The US dollar exchange rate, as represented by the dollar index (DXY), traded flat-to-negative around 95.70 in Asia.
The USD/JPY pair defended a key Fibonacci retracement level for the second day, even though the International Monetary Fund (IMF) revised lower the global growth forecast by two-tenths to 3.7 percent for 2018 and 2019.
The Fund revised lower China’s growth forecast to 6.6 percent this year and 6.2 percent in 2019 and added that rising borrowing costs in the US are increasing pressure on emerging market economies by fueling an outflow of capital as investors seek higher returns.
Still, names like Shanghai Composite and Hong Kong’s Hang Seng reported gains in Asia. Meanwhile, stocks in Japan, Australia, and New Zealand fell 1 percent each. South Korea’s Kospi and India’s Nifty 50 suffered moderate losses.
The moderate risk-off weighed over the USD/JPY, although the pair bounced off 112.96 (38.2% Fib R of 110.38/114.55) for the second day, establishing the Fibonacci retracement as the key level to beat for the bears in the short-term.
Buoyed by a rally in the Dalian iron ore futures to three-week highs, the Aussie dollar jumped to a three-day high of 0.7094. The National Australia Bank’s (NAB) business confidence and business conditions indices also bettered estimates. The AUD/USD looks set for a stronger corrective rally above 0.71, having carved out a rounding bottom on the hourly chart.
Looking ahead, Italy headlines remain a drag on the EUR. The widening of the Italy-German yield differential could weigh over the common currency. Further, the uptick in the treasury yields could add extra bearish pressure around the common currency.
The JPY crosses could rise if the European stocks turn a blind eye towards the IMF’s downward revision of global growth forecasts and focus on increasing calls for stronger stimulus measures in the world’s second-largest economy.
Key headlines in Asia
- IMF cuts China’s growth forecast as trade war takes its toll
- China must take strong stimulus measures to support growth – state media
- Australia: Business Conditions up 1pt to +15, Confidence up 1pt to +6 – Westpac
- NZ: Monthly Inflation Gauge rose 0.3% m/m in September – ANZ
- The EU and the UK are in the middle of a game of Brexit chicken – Reuters
Economic data in Europe
06:00 GMT Germany Exports MM SA
06:00 GMT Germany Imports MM SA
06:00 GMT Germany Aug Trade Balance
Events in Europe
07:00 GMT Riksbank’s Skingsley participates in Swedish Trade Union Confederation economists’ monetary policy seminar in Stockholm.
08:30 GMT BoE’s Financial Policy Committee statement to be published in London.
11:30 GMT Federal Reserve Bank Dallas’ Kaplan speaks before Economic Club of New York breakfast, in New York.
14:00 GMT Federal Reserve Bank of Chicago’s Evans gives opening remarks at the OFN Conference 2018 in Chicago.
17:00 GMT Federal Reserve Bank of Philadelphia’s Harker speaks at Global Interdependence Center event in Philadelphia.
What’s brewing in the majors?
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