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.
This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.
