Kiwi slumps into RBNZ, US 2-year yield spike boosts dollar

Summary: It was another riveting session in FX with the US Dollar staying mostly bid against its Rivals. The two-year US treasury yield, which bond traders associate more closely with Fed policy, spiked 8 basis points to 3.26%. Against the yield sensitive Japanese Yen, the Greenback (USD/JPY) soared 0.77% to 134.22 from 133.15 yesterday. The benchmark US 10-year bond rate was up one basis point to 2.80%. Disappointing Chinese economic data (Industrial Production, Retail Sales, and Fixed Asset Investment) released Monday boosted the Dollar over 1% against the Offshore Chinese Yuan (USD/CNH) to 6.8130 from 6.7390. Overnight, the USD/CNH eased back to 6.7930. Heading into today’s RBNZ monetary policy meeting where the New Zealand central bank is expected to hike rates 50 bp for the 4th time in a row, the Kiwi (NZD/USD) tumbled 0.32% to 0.6345 (0.6363 yesterday). After plunging from 0.7120 to 0.7020 yesterday, weighed by the weak Chinese data, the Aussie Dollar (AUD/USD) settled at 0.7022, little changed from yesterday. The Euro (EUR/USD) was little changed at 1.0168 (1.0165) despite falls in both German and Eurozone ZEW Economic Sentiment indicators. Sterling (GBP/USD) edged higher to 1.2092 from 1.2058 following mixed UK Employment data. The USD/CAD pair (US Dollar-Canadian Dollar) soared to 1.2900 (1.2775 yesterday) despite a rise in Canada’s CPI report. A favoured gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) settled at 106.47 (106.50). The US Dollar was mixed against most Asian and Emerging Market currencies. USD/THB (Dollar-Thai Baht) closed at 35.40 (35.50) while USD/SGD (US Dollar-Singapore Dollar) closed flat 1.3785. Wall Street stocks finished with modest gains. The DOW closed at 34,165 (33,875) while the S&P 500 was last at 4,307 from 4,292 yesterday.

Data released yesterday saw Japan’s Tertiary Industry Activity drop to -0.2% from a previous upwardly revised 1.1% (from 0.8%), missing estimates at 0.3%. UK Average Earnings Index climbed to 5.1%, bettering forecasts at 4.5%. The UK Claimant Count Change (change in number of people claiming unemployment-related benefits) was at -10,500, against expectations of -32,000. Britain’s Unemployment Rate was unchanged at 3.8%. The Eurozone ZEW Economic Sentiment Index slumped to -54.9 from -51.1, missing estimates at -52.0. Germany’s ZEW Economic Sentiment Index dropped to -55.3 from a previous -53.8, lower than expectations at -52.7. Canada’s Headline CPI for July (m/m) matched forecasts at 0.1%. Canadian Common CPI (y/y) rose to 5.5% from a previous upward revised 5.3% (against 4.6%) and beating estimates at 4.7%. US July Building Permits beat estimates at 1.67 million units against 1.63 million units. US Housing Starts ease to 1.45 million units from a previous upward revised 1.60 million (from 1.56 million), bettering estimates of 1.53 million. US Capacity Utilisation Rate rose to 80.3% from 79.9% and estimates at 80.2%. US Industrial Production rose to 0.6% from an upward revised 0.0% (-0.2%), and higher than forecasts at 0.3%.

Earlier this morning, New Zealand’s PPI Input (q/q) rose to 3.1% against forecasts of 2.1%, while NZ PPI Output (q/q) beat expectations of 1.9% to 2.4%, but lower than a previous 2.6%. The Kiwi (NZD/USD) was little changed at 0.6345 following the release of the data.

EUR/USD – The Euro closed little changed at 1.0168 (1.0165 yesterday) after tumbling to an overnight low at 1.0122. The shared currency initially was dragged lower by weaker-than-forecast Germany and Eurozone ZEW Economic Sentiment data. Short covering saw the Euro trade to an overnight high at 1.0195.

AUD/USD – The Aussie Battler managed to finish flat at 0.7022 (0.7020 yesterday) against the Greenback, despite a weaker Kiwi as well as most Asian and Emerging Market currencies. The Australian Dollar plunged to an overnight low at 0.6991 before rallying to its New York close.

NZD/USD – Heading into today’s RBNZ interest rate policy meeting (12 noon Sydney time), the Kiwi slumped 0.32% to 0.6345 from 0.6363. The RBNZ is widely expected to raise its Official Cash Rate by 50 bp to 3.0%. This will be the fourth straight 50 bp hike by New Zealand’s Central Bank. Overnight high traded was at 0.6370, while the low was at 0.6316.

USD/JPY – Against the yield sensitive Japanese Yen, the Greenback soared to finish at 134.22 from 133.15 yesterday. The spike in the US 2-year bond yield to 3.26% from 3.18% yesterday boosted this currency pair. In volatile trade, the overnight high for USD/JPY was at 134.68, while the low recorded was at 132.95.

On the Lookout: Today’s economic calendar picks up ahead of key central bank meetings. Japan just released its Reuters Tankan Index for August, which climbed to 13 from July’s 9. This is followed by Japan’s July Balance of Trade (f/c -JPY 1405 billion from previous -JPY 1383.8 billion – ACY Securities), Japanese June Core Machinery Orders follow next (m/m f/c 1.3% from previous -5.6%; y/y f/c 7.5% from 7.4% - ACY Finlogix). Australia follows with its Westpac Bank July Leading Index (m/m no f/c, previous was -0.2%). Australia’s Q2 Wage Price Index follows (q/q f/c 0.8% from 0.7%; y/y f/c 2.7% from 2.4% - FX Street). The RBNZ’s Interest Rate Decision (12 noon, Sydney time) follows (f/c 3% from previous 2.5% - FX Street and market consensus). The RBNZ follows with a Press Conference shortly after. The UK kicks off European data with its July Headline CPI (m/m f/c 0.4% from 0.8%; y/y f/c 9.8% from 9.4% - ACY Finlogix), UK Core CPI (m/m f/c 0.2% from 0.4%; y/y f/c 5.9% from 5.8% - ACY Finlogix), UK July PPI Output (m/m f/c 0.8% from 1.4%; y/y f/c 16.2% from 16.5%), UK July PPI Input (m/m f/c 1% from 1.8%; y/y f/c 23.9% from 24.0 % - FX Street), UK July Retail Price Index (m/m f/c 0.6% from 0.9%; y/y f/c 12% from 11.8% - FX Street). The Eurozone follows with its Q2 GDP (q/q f/c 0.7% from 0.7%; y/y f/c 4% from 4%), Eurozone Q2 Employment Change (q/q f/c 0.4% from 0.6%; y/y f/c 2.5% from 2.9% - FX Street). Finally (whew), the US releases its July Headline Retail Sales report (m/m f/c 0.1% from 1.0% - ACY Finlogix), US July Core (excluding Autos) CPI (m/m f/c -0.1% from 1%). The US FOMC Meeting Minutes will be released at 4 am tomorrow morning, Sydney time.

Trading Perspective: The Dollar retained its bid against most of its Rivals in another roller coaster ride for FX. The spike in the US 2-year bond yield saw the Greenback rally strongly against the Japanese Yen, Offshore Chinese Yuan and most Asian and EM Currencies. Normally, the USD/Asia and EMFX are lagging indicators, but during certain periods, they have led. This may well be one of them. Keep watch over the USD/EMFX pairs, they could well be pointing for further gains for the US currency. Global central banks have been raising interest rates due to inflation expectations whilst economic conditions have slowed. Monday’s release of a disappointing trifecta of Chinese economic data will weigh on risk sentiment, which is generally Dollar supportive. Tonight’s a big night with the release of US Retail Sales and the FOMC’s latest meeting minutes. Expect the US Dollar to maintain its advantage in continued choppy trade. Again, the one constant we can be mostly certain of, is elevated volatility. Happy days.

EUR/USD – The Euro managed to claw its way back against the Greenback and delay an attack at parity. For now. After finishing little changed at 1.0168 from 1.0165 yesterday, the Euro remains vulnerable. Immediate support on the day lies at 1.0145 followed by 1.0115. Immediate resistance can be found at 1.0200 (overnight high traded was 1.0195). The next resistance level lies at 1.0230. Look for another choppy session, likely range 1.0110-1.0210.

AUD/USD – The Aussie Battler was little changed, closing at 0.7022 from 0.7020 yesterday. Overnight the AUD/USD pair tumbled to a low at 0.6991. Today, look for immediate support at 0.6990 followed by 0.6960. On the topside, immediate resistance lies at 0.7050 and 0.7080. Watch the USD against Asian and EM currencies, they could lead the way for the Aussie. Further weakness in the Chinese Yuan will weigh on both the Aussie and Kiwi.

NZD/USD – With the RBNZ about to raise rates by 50 bp for the fourth straight time at the conclusion of their meeting today, the Kiwi should have some support. The NZD/USD pair closed at 0.6345, down from 0.6363 yesterday. Overnight low traded was at 0.6316. Look for immediate support at 0.6315 followed by 0.6285. On the topside, immediate resistance can be found at 0.6370 (overnight high) followed by 0.6400. Expect another volatile, roller-coaster session in this currency pair, likely range 0.6275-0.6425. Look to sell rallies.

(Source: Finlogix.com)

GBP/USD – Sterling managed to hold its own against the Greenback, settling at 1.2092, up from yesterday’s 1.2058 finish. Mostly better-than-expected UK Employment data supported the British currency. Overnight high traded was at 1.2118. On the day, look for immediate resistance at 1.2115 followed by 1.2145. Immediate support can be found at 1.2060, 1.2030 and 1.2000. Overnight low recorded was at 1.2008. Look for more choppy trade in this currency pair, likely range 1.2020-1.2120. Prefer to sell rallies.

Keep those tin helmets on, the roller coaster ride is far from over. Have a good trading day ahead all.