Forex today: risk-on FX outperforming ahead of the FOMC
|- ECB President Draghi’s speech was dovish, adding to the overall easier global monetary policy tone.
- USD/JPY extended decline to just above 108.00 before bouncing on trade deal optimism.
Forex today was seeing risk-on FX performing, basking in the rays of optimism following confirmation from both sides that Trump and Xi will be meeting at the G20 around the corner to discuss trade. On top of that, we have the Fed coming up today with markets in anticipation of a risk-on outcome following a dovish rhetoric from the central bank. At the same time, there were dovish remarks from the ECB where Draghi pointed towards an easier monetary policy to help prop up the eurozone economy. "The main catalyst was ECB President Draghi’s speech where he determinedly stated that the ECB will ease policy further if it feels its inflation target is under threat," analysts at ANZ Bank argued. Sundrqurntly, the US 10-year yield was 1.7bps lower while the German 10-year bund was lower by 7.6bps.
US data
US May housing starts fell 0.9% m/m vs expectations of a 0.3% gain. "However, the April release was revised up, leaving the aggregate level as expected. Housing demand has shown some signs of benefitting from lower interest rates recently but concern over higher tariffs on building imports from China has dampened sentiment amongst home builders," the analysts at ANZ noted.
Currency action:
Analysts at Westpac offered a breakdown of the currency action as follows:
- EUR/USD fell from around 1.1240 to 1.1181 after the Draghi comments.
- GBP/USD probed lower in London trade but then recovered 0.5 cent to 1.2560.
- USD/JPY extended its Sydney session decline to just above 108.00 in London but then bounced as high as 108.68 after US president Trump tweeted that he would be having an “extended meeting” with China president Xi at the G20 in Japan next week. The pair steadied around 108.45, little changed net on the day.
- AUD/USD probed as low as 0.6832 in London trade but bounced as far as 0.6882 as sentiment improved on the belated confirmation of the Trump-Xi meeting.
- Outperformer NZD rose 0.5% to 0.6530.
- AUD/NZD dipped to 1.0507 before rebounding to 1.0530, net -0.2% on the day. The GDT dairy auction resulted in prices falling 3.8% overall, with whole milk powder down 4.3%, skim down 3.5%, and butter down 5.7%.
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