Aussie and Kiwi tumble, Chinese Yuan plunges to four-month low

Euro, Sterling slide, JPY steadies, Dollar Index (DXY) soars

Summary:

China’s Offshore Yuan plunged to a 4-month low against a resurgent Greenback on speculation that Chinese officials would ease policy further to support the economy.

The USD/CNH pair ratcheted to 7.2750, a 4-month high at the New York close, up against Friday’s opening of 7.2220. The Greenback kicked off last week at 7.2050.

The Australian Dollar (AUD/USD), often sold as a liquid proxy for the Chinese Yuan tumbled 0.9% to 0.6512 (0.6570). The Kiwi (NZD/USD) had its wings clipped, falling to 0.5995 (0.6045).

The Dollar Index (DXY), which measures the value of the Greenback against a basket of 6 major currencies, soared to 104.12 against 103.70 on Friday.

Speculation that the other global central banks would cut interest rates ahead of the Federal Reserve increased after the Swiss National Bank (SNB) unexpectedly slashed its policy rate.

Global bond yields eased. The US 10-year yield settled at 4.20% (4.27%). Germany’s 10-year Bund yield dropped to 2.32% from 2.4%.  

The Euro (EUR/USD) slumped to 1.0807 from 1.0857 previously, its lowest finish since February 29. Bundesbank President Joachim Nagel said the ECB might consider rate cuts before their summer break. Eurozone inflation continues to fall towards the bank’s 2% target.

Sterling (GBP/USD) slid to 1.2600 from 1.2650 weighed by broad-based US Dollar strength. UK Retail Sales remained stagnant in February following January’s 3.6% surge.

The USD/JPY pair dipped to 151.45 from Friday’s opening at 151.65. Japan’s Finance Minister Shunichi Suzuki repeated his mantra that he is closely watching foreign exchange moves with a sense of urgency.

Against the Asian and Emerging Market Currencies, the Dollar edged higher. The USD/SGD pair (Dollar-Singapore) rallied to 1.3485 (1.3435). USD/THB (Dollar-Thai Baht) rose to 36.30 (36.25).

Other economic data released Friday saw Germany’s IFO Business Climate edge up to 87 from 85.5 previously. UK CBI Industrial Trends Orders climbed to -18 from -20 previously.

• AUD/USD – the Aussie Dollar was battered lower against the Greenback to 0.6512 from Friday’s open at 0.6570. The tumble in China’s Offshore Yuan and broad-based US Dollar strength weigh on the Battler. The Australian Dollar traded to a low at 0.6510.
• EUR/USD – the shared currency fell toward the 1.0800 support level, finishing at 1.0807 from Friday’s 1.0857. The Euro traded to an overnight and March low at 1.0802 before steadying. The EUR/USD pair saw an overnight high at 1.0868.
• USD/JPY – against the Japanese Yen, the Greenback maintained its bid, settling at 151.45, against Friday’s opening at 151.45. The overnight high traded was at 151.86 while the overnight low recorded was at 151.00.
• GBP/USD – Sterling slid against the overall stronger Greenback to 1.2600 from 1.2650 previously. The British currency was pounded to an overnight low at 1.2575 before steadying. The overnight high traded for the GBP/USD pair was at 1.2675.

On the lookout:

Today’s economic calendar sees a light data release as we head into the long Easter weekend. Japan kicks off with the release of the Bank of Japan’s Monetary Policy Meeting Minutes (10.50 am, Sydney time). Later in the afternoon, the BOJ releases its January Final Coincident Index (f/c 110.20 from 116.00 – ACY Finlogix) as well as Japanese January Final Leading Economic Index (f/c 109.90 from 110.50 – ACY Finlogix).

The UK start off European data with its UK March CBI Distributive Trades (f/c -15 from -7 – ACY Finlogix). The US rounds up today’s light calendar with its Final February Building Permits (m/m f/c 1.9% from -0.3% - ACY Finlogix) and US Chicago Fed National Activity Index February (f/c -0.9 from -0.3 – ACY Finlogix).

Trading perspective:

The US Dollar’s renewed strength at the end of the week was more the result of a weaker finish from its Rivals. With other global central banks likely to cut rates ahead of the Federal Reserve, expect the Dollar to keep its bid. The caveat is a continuous build-up of net speculative US Dollar long bets. At the close of last week, Reuters revealed that the IMM currency futures saw a continued unwinding of short currency positions, ie US Dollar longs. Heading into the long Easter weekend, further unwinding of long US Dollar bets is likely.

• AUD/USD – Despite the soft finish in the Australian Dollar, expect support for the Battler to emerge as speculative short Aussie bets are unwound. The IMM futures market saw a build-up of AUD short contracts to -AUD 107,538 contracts from -AUD 90,840 previously. Look for immediate support today at 0.6500 and 0.6470. Immediate resistance lies at 0.6540, 0.6580 (overnight high traded was 0.6577), and 0.6600. Look for the Aussie to trade a likely range today of 0.6485-0.6585. Prefer to buy dips.

• USD/JPY – while the Greenback dipped to 151.45 Yen from 151.65 previously, the Dollar remains bid its bid against the Japanese Yen. IMM futures revealed a build up of JPY shorts (USD longs) to -JPY 116,012 against a previous -JPY 102,322. Look for immediate support at 151.20 followed by 151.00 (overnight low) and 150.70. Immediate resistance can be found at 151.85 (overnight high traded was 151.86). The next resistance level lies at 152.00 which is strong. Look for consolidation in a likely range today of 150.80-151.80. Prefer to sell USD/JPY rallies.
• EUR/USD – the shared currency slid against the overall stronger US Dollar to 1.0807 in late New York, down from Friday’s open at 1.0857. On the day, look for immediate support at 1.0800 (overnight low traded was 1.0802). The next support level lies at 1.0770. On the topside look for immediate resistance at 1.0870 (overnight high traded was 1.0868). The next resistance level is found at 1.0900. The IMM futures saw speculative long Euro bets cut to +EUR 48,342 from +EUR 74,407. While the long bets were trimmed, the futures market is still long of Euros. Look for the Euro to trade a likely range today of 1.0770-1.0870. Prefer to sell Euro rallies.
• GBP/USD – Sterling slid against the US Dollar to 1.2600 at the New York close, against its opening at 1.2650. Look for immediate support today at 1.2575 (overnight low) followed by 1.2545. Immediate resistance can be found at 1.2625, 1.2655 and 1.2675 (which was the overnight high). IMM futures saw net speculative GBP longs trimmed to +GBP 53,200 from +GBP 70,451. While the longs have been trimmed, there are still substantial GBP shorts. Likely range today, 1.2550-1.2650. Prefer to sell Sterling on strength.

Have a good trading week ahead all. Happy Monday.