Forex today: Dollar firmer sinking the yen as stocks rally

• Currency markets pick up the trade war angst.
• U.S. stocks rally on earnings and positive U.S. data.

In forex today, risk off was felt through the usual suspects, but if you were monitoring stocks, it was risk-on with a vengeance. The S&P 500 rallied to just 2% shy of its all-time high and the Dow Jones Industrial Average (DJIA), rallied 214.66 points, or 0.8%, to 25,862.68 while the Nasdaq Composite added 75.90 points, or 1%, to end at 7,898.05. Better-than-expected US data supported the positive mood, and although trade wars bubble away on the backburner, investors ran with US Commerce Secretary Ross saying that they’re getting to the core of talks with China, although dubiously, in the same breath, saying that Huawei order will be effective starting tomorrow. Despite ongoing trade concerns, the yen was sunk by a firmer dollar picking up a bid on higher U.S. yields.

"Trade headlines are dominating news feeds at present, and rightly so. A significant confidence shock coupled with a trade slowdown could lead to some pretty soft global economic outcomes, to which NZ would not be immune. However, provided the US household sector remains in good stead, it is generally accepted that a rise in tariffs equivalent to 0.25% of nominal GDP would not completely derail the US expansion. For China, further stimulus will be required to offset the impact on export values. Now, it’s back to headline watching,"

analysts at ANZ Bank explained.

US data came in stronger than expected. The Philadelphia Fed Survey (which tracks closely with the ISM Manufacturing Index) came in better than expected at 16.6 in May (last: 8.5). Meanwhile, US housing starts rose 5.7% m/m in April following an upwardly revised 1.7% gain in March. As for market reactions, to wrap up, the yield on the US 10-year note added 2bps to 2.40% while WTI rallied 1.5% (ME tensions) and gold fell 0.8% as the dollar ruled the FX waves.

Currency action

Analysts at Westpac offered a summary of some of the common currencies related to the session ahead:

• EUR/USD probed above 1.1220 in the London morning, then began a descent to 1.1170 in NY. This was the pattern for much of the G10. 
• GBP/USD fell from 1.2850 in Sydney trade to 1.2790, as UK media discussed when PM May might resign.
• USD/JPY benefited from improved risk sentiment and higher US yields, rising from under 109.40 to a high of 109.97, steadying at 109.85. 
• AUD/USD tested 0.6930 around the time of the EUR/USD peak, but then followed the trend to around 0.6890 late NY. Mild AUD underperformance may have been linked to some RBA forecasters changing their calls to a June cut. 
• NZD/USD fell from 0.6580 to 0.6535, -0.4% over the day. 
• AUD/NZD steadied a little lower on the day, around 1.0545.

Key notes from overnight

Wall Street marks an impressive rally in the charts, DJIA en route to 26000 psychological number

Key events ahead

Traders need to keep an eye on the Aussie elections. Analysts at Westpac give a summary of what to expect:

• "Australians have already been voting for 3 weeks but Saturday is the official date of the federal election, with vote counting to begin 6pm Sydney time. The lower house result should be clear any time from mid-evening Saturday but the potentially crucial Senate composition will not be known by Monday and indeed should take many days.
• The Liberal-National Coalition has been in government since Sep 2013, in which time they have had 3 prime ministers, the Liberal Party having removed its own election winners Tony Abbott and Malcolm Turnbull, replaced by Scott Morrison.
• Polling has consistently pointed to a win for the opposition Labor Party but the margin has narrowed in recent weeks."