FX
volatility continued to climb amidst mixed signals arising from central bank
speak, diverse economic data and market positioning. The Dollar Index (DXY), a
popular gauge of the Greenback’s value against a basket of 6 major currencies,
eased further to 101.77 from 102.05 yesterday. It was the weakest finish for
the US currency in a month.
The Euro
(EUR/USD) outperformed, extending its rally to 1.0732 (1.0697 yesterday).
Sterling, however, underperformed, tumbling against the Greenback to 1.2535
(1.2585) following the release of weak UK PMI data. Against the Japanese Yen,
the US Dollar (USD/JPY) slumped 0.76% to 126.86 from 127.90 yesterday.
The
Australian Dollar (AUD/USD) steadied to 0.7107 in late New York trade,
little-changed from 0.7105. Ahead of tomorrow’s Reserve Bank of New Zealand
monetary policy meeting (12 noon Sydney), the Kiwi (NZD/USD) stabilised to
0.6460 (0.6467). The RBNZ is widely expected to raise its Official Cash Rate to
2% from the current 1.5%. As New Zealand grapples with burgeoning inflation, a
series of rate increases is forecast until the Official Cash Rate hits around
the 3.5% mark.
The Dollar
was mostly lower against the Asian and Emerging Market Currencies. USD/THB slid
0.3% to 34.10 from 34.20 yesterday. Against the Singapore Dollar, the Greenback
(USD/SGD) eased to 1.3715 from 1.3735. Bond yields tumbled while Wall Street
stocks steadied, finishing mixed following an initial sell-off.
The DOW
settled 0.22% up at 31,980 (31,770) while the S&P 500 was last at 3,952
from 3,945 yesterday. The benchmark US 10-year treasury bond yield fell 10
basis points to 2.75%. Germany’s 10-year Bund rate dropped 5 basis points to
0.96% from 1.01%. Japan’s 10-year JGB was flat at 0.23%. Australia’s 10-year
bond yield dipped to 3.31% from 3.32%.
Data
released yesterday saw most global Manufacturing and Services PMIs lower than
median expectations. Eurozone Global Composite PMI for May dipped to 54.9 from
a previous 55.8 and lower than median estimates at 55.3. The UK Flash Services
PMI tumbled to 51.8 from a previous upward revised 58.9 (from 58.3) and lower
than economist’s median expectations at 56.9.
The US Flash
Services PMI fell to 53.5 from an upward revised 55.6 (54.7 previous) and
median expectations at 55.1 US New Home Sales fell to 591,000 from a downward
revised 709,000 and lower than median estimates at 751,000. The US Richmond
Manufacturing Index slumped to -9 from a previous 14, missing estimates at 9.
·
EUR/USD – the shared currency
extended its two-day rally against the US Dollar, climbing 0.44% to 1.0732 from
1.0697 yesterday. In choppy trade, the Euro soared to an overnight and one-month
high at 1.0748 before easing to its New York close. Despite mixed Eurozone PMI
data, the shared currency benefitted from broad-based US Dollar selling.
·
AUD/USD – the Aussie Battler
(AUD/USD) steadied to finish little-changed at 0.7107 from 0.7105 yesterday.
Over the weekend, Australia elected Labor candidate, Anthony Albanese to lead
the country as Prime Minister in the federal election. The AUD/USD pair
initially slid to a low at 0.7056 overnight before climbing at the close to
finish above the 0.7100 level.
·
NZD/USD – ahead of today’s RBNZ
meeting (12 noon, Sydney), the Kiwi settled at 0.6460 from 0.6470 yesterday
following a choppy overnight session. The NZD/USD traded to an overnight high
at 0.6466 while the overnight low recorded was at 0.6409. The RBNZ is widely
expected to raise its Official Cash Rate by 50 basis-points to 2.0%.
·
USD/JPY – against the Japanese
Yen, the US Dollar slumped to finish at 126.86 from yesterday’s open at 127.90.
The main catalyst was the fall in the US 10-year bond yield by 10 basis-points
to 2.75%. Japan’s 10-year JGB rate was unchanged (0.23%). Overnight trade in
this currency pair was volatile with the high recorded at 128.08, while the low
was at 126.36. Happy days!
On the
Lookout: Today’s
economic calendar kicks off amidst the highly anticipated FOMC meeting minutes
release (4 am Sydney time, Thursday 26 May). Earlier today (12 noon Sydney
time), the RBNZ meets on monetary policy where officials are widely expected to
raise the Official Cash Rate by 50 basis-points to 2.0% from 1.5%.
Markets will
be focussed on the RBNZ Statement in its Press Conference following the
meeting. Australian reports its Q/Q Construction Work Done (f/c 1.0% from 0.4%
– ACY Finlogix). Japan follows with its March Final Leading Economic Index (no
f/c, previous was 100.1). Germany kicks off European data with its Final GDP
Growth Rate (q/q f/c 0.2% from -0.3%; y/y f/c 3.7% from 1.8% – ACY Finlogix),
German June GFK Consumer Confidence (f/c -26 from previous -26.5 – ACY
Finlogix), French May Consumer Confidence (f/c 89 from 88 – ACY Finlogix).
Switzerland
releases its May Economic Sentiment Index (no f/c, previous was -51.6). ECB
President Christine Lagarde speaks at a panel discussion at the World Economic
Forum in Davos, Switzerland. Bank of Japan Governor Haruhiko Kuroda speaks at a
conference hosted by the Bank of Japan in Tokyo.
The US
rounds up today’s economic data releases with its April Durable Goods Orders
(m/m f/c 0.6% from 0.8% – ACY Finlogix), US April Core Durable Goods Orders
(m/m f/c 0.6% from previous 1.1% – ACY Finlogix). US Federal Reserve
Vice-Chairman and FOMC Member Lael Brainard speaks at the Johns Hopkins
University in Washington, DC.
Trading
Perspective: Another day, another Dollar. Expect the elevated FX
volatility to continue to dominate trade today. In overnight trade, the Dollar
Index (DXY) eased a further 0.29% to 101.78 (102.07 yesterday). A week ago, the
DXY was changing hands at 103.30. The US currency has lost ground against its
Rivals as other global central banks set out to normalise policy and raise
interest rates amidst soaring inflation and growth concerns. Global
Manufacturing Output slowed in data released yesterday. The benchmark US
10-year bond yield tumbled 10 basis points to 2.75% from 2.85%, its lowest level
in nearly a month (27 April). Expect the Dollar’s downside to be limited ahead
of tomorrow’s release of FOMC meeting minutes. Traders will also focus on
various central bank speakers.
·
EUR/USD – The shared currency
rallied for the second day running against the overall weaker US Dollar.
Overnight high traded was at 1.0748, a one-month peak. The Euro closed at
1.0732. Immediate resistance today lies at 1.0750 followed by 1.0780. On the
downside, look for immediate support at 1.0700, 1.0670 and 1.0640. Look for
another choppy trading session in this puppy today, likely range 1.0660-1.0760.
Prefer to sell rallies today.
·
AUD/USD – the Aussie Battler got
help from the overall weaker US Dollar, steadying at 0.7107 from 0.7105.
Overnight, the AUD/USD pair traded to a low at 0.7065. On the day, look for
immediate support at 0.7080, 0.7050 and 0.7020. Immediate resistance can be
found at 0.7130, 0.7160. The next resistance level lies at 0.7200. Look for
consolidation in the Aussie, with a likely range of 0.7050-0.7130. Preference
is to sell into Aussie strength.
·
USD/JPY – a sign of elevated FX
volatility is how the Dollar-Yen trades. Yesterday was no disappointment with
an overnight low traded at 126.36 and overnight high at 128.09. The Greenback
finished at 126.86 Japanese Yen. The drop in the US 10-year bond yield will
keep the USD/JPY capped with initial resistance found at 127.20 followed by
127.50 and 127.80. Look for further choppy trade today. Likely range
126.40-128.20. Prefer to buy on US Dollar weakness today, keep those tin
helmets on.
·
NZD/USD – we could be in for a
wild one today in the Kiwi. Overnight, the NZD/USD pair traded to a high at
0.6466 before settling at 0.6460 in late New York. Immediate resistance can be
found at 0.6500 followed by 0.6530 and 0.6560. Immediate support can be found
at 0.6430, 0.6400 and 0.6370. If the RBNZ hike rates 0.5% as expected, look for
the Kiwi to spike initially to 0.6500 before falling to 0.6400/20. Tin helmets
on for this puppy for sure!
(Source: Finlogix.com)
Have a good
trading day, top Wednesday ahead to all.
This article was written by Michael Moran, ACY Senior
Currency Strategist at ACY Securities.
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