Risk appetites went on a roller-coaster ride during NY trading today,  initially carrying on from last week's surge in risk aversion after weaker than expected US employment data cast doubt on the timing of economic recovery.    In currencies, the USD made new highs early in the session, with EUR/USD briefly dipping below 1.3900, while JPY-crosses (carry trades) were abandoned in a hurry as stop loss levels were triggered.  USD/JPY briefly fell below 95.00 on the cross-JPY selling, hitting stop loss selling orders and sending USD/JPY to just below 94.70 at its lowest.  The early selling of risky assets subsided after the ISM June service-sector survey showed a better than expected gain from +44.0 to +47.0, beating expectations of an improvement to 46.00.  Stock markets stabilized on the better news and spent the remainder of the day grinding higher, and the DJIA and the S&P 500 managed to close with small gains, while the Nasdaq recovered most of its losses to close down about 0.5%.  After the better ISM services report, the USD reversed lower and carry trades came bouncing back along with risk appetites, with EUR/JPY rebounding from a low near 131.70/80 to close out around 133.25, while USD/JPY regained the 95 handle to close near 95.30.

Other risky assets did not fare as well.  Oil prices slid further to below $65.00/bbl as concerns over any recovery in demand continued to weigh on the price, especially after the sharp price rejection from above $70/bbl last week.  Gold prices also remained depressed with spot gold down just over $7/oz at around $925, but off the lows seen just below $921.  In contrast, the USD actually lost ground against most currencies, while carry trades recouped most of their overnight losses.

The impending G8 summit this weekend in Italy is still generating talk after purported comments last week from Chinese officials indicating they wanted to discuss the US dollar's reserve status.  Subsequent denials by Chinese officials have helped the USD recover, but lingering suspicions remain that some USD-negative views may yet emerge from the G8.  Overall, though, the dominant theme continues to focus on risk appetites, with the USD tending to strengthen and carry trades to weaken on weaker asset markets and vice versa when risk appetites improve.  Ahead in Asia trading we are expecting to see 2Q NZ business sentiment and a likely steady RBA interest rate decision.

Upcoming Economic Data Releases (Asia Session)
prior expected

  • 7/6/2009  22:00  NZ  NZIER Business Opinion Survey  2Q  -65  - -
  • 7/6/2009  23:30  AU  AiG Perf of Construction Index  JUN  46.9  - -
  • 7/6/2009  23:50  JN  Official Reserve Assets  JUN  $1024.0B  - -
  • 7/7/2009  4:30  AU  RBA CASH TARGET  7-Jul  3.00%  3.00%