US 10-YR Yield Soars to 3.71%; EMFX, INR Plunge against Greenback

Summary

Following yesterday’s Federal Reserve rate hike, several global central banks announced their monetary policy decisions. Currencies showed mixed results in choppy overnight trade.

The Bank of Japan was first and kept its Policy rate unchanged at -0.10% which was widely expected. Shortly after, the USD/JPY pair rocketed to an intraday high at 145.90 (144.40 yesterday).

The Bank of Japan intervened in the FX market to prevent further Yen weakness against the Dollar. In a little over 40 minutes, the USD/JPY plunged to 140.34, before settling to close at 142.40. It was the first intervention by the Japanese authorities to strengthen the Yen since 1998.

The Swiss National Bank raised its benchmark rate by 75 bps to 0.50% (-0.25%). However, the USD/CHF rallied to 0.9770 from 0.9670 yesterday. The Euro (EUR/USD) was little changed at 0.9837.

The British Pound (GBP/USD) steadied 1.1260 from its opening at 1.1252 yesterday. Bank of England policymakers unanimously agreed to hike its Official Bank Rate by 75 bps to 2.25%, as was expected.

A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) rose to an overnight and 20-year high at 111.81 before settling at 111.25.

The Australian Dollar (AUD/USD) steadied, climbing to 0.6645 after tumbling to 0.6610 yesterday. The Kiwi (NZD/USD) followed, edging higher to close at 0.5845 from 0.5830.

Against the Asian and Emerging Market currencies, the US Dollar ratcheted higher. The Greenback soared to an all-time high at 81.20 against the Indian Rupee, before settling at 81.05 (79.95 yesterday).

The USD/CNH (Dollar-Offshore Chinese Yuan) rallied to 7.0894 overnight before easing to 7.0820.

Higher US bond yields were the catalyst once again. The benchmark 10-year US treasury yield jumped 17 basis points to 3.71% (3.54%), a 12-year high. Germany’s 10-year Bund climbed to 1.96% (1.89%). The UK 1-year Gilt yield soared to 3.49% from 3.31%.

Economic data released yesterday saw New Zealand’s Trade Deficit widen to -NZD 2447 million from a previous -NZD 1406 million. Analysts had forecast a deficit of -NZD 500 million.

The Bank of Japan’s Annual Core CPI climbed to 1.9% from 1.8%, matching analyst’s expectations.

Eurozone August Consumer Confidence fell to -29 from -25, and median expectations at -26.

Claims for Unemployment benefits by US workers fell to 213,000 against estimates at 220,000. Previous Claims were adjusted downward to 208,000 (213,000).

USD/JPY – The Dollar Yen had a roller coaster ride, trading in late 80’s volatile fashion. Opening at 144.40 yesterday, the Greenback rocketed to a high at 145.90. This prompted the Bank of Japan to enter the FX market and sell USD/JPY which plunged to 40.34. The Bank of Japan acted alone in their intervention. Japanese markets are closed today (Autumnal Equinox Day). Which is an interesting…

GBP/USD – The British Pound finished little changed against the US Dollar at 1.1262 from yesterday’s open at 1.1253. The Bank of England raised its Official Bank Rate by 50 bps to 2.25%, which was widely expected. Overnight, Sterling hit a high at 1.1364 before dropping to its New York close in volatile trade.

AUD/USD – The Aussie Battler rebounded after the BOJ intervention, soaring to 0.6671 overnight high from yesterday’s 0.6610 opening. The AUD/USD eased to settle at 0.6645 in late New York. Overnight, the Aussie tumbled to a low at 0.6574 in choppy trade.

EUR/USD – The shared currency closed little changed at 0.9837 from 0.9832 yesterday. Overnight, the Euro traded to a high at 0.9907 before slipping to its New York close. The overnight low traded for the EUR/USD pair was at 0.9807 in volatile fashion.

On the lookout

Today’s economic calendar sees the release of global Flash Manufacturing and Services PMIs.

Australia kicked earlier this morning with its September S&P Global Manufacturing PMI which rose to 53.9 from 53.8, beating estimates at 53.2. Australia’s S&P Global Services PMI rose to 50.4 from a previous 50.2 but missing forecasts at 50.8.

Earlier the UK released its September GFK Consumer Confidence which slid to -49 from -44, and lower than median forecasts at -42.

Switzerland releases its Current Account (f/c +CHF 13 billion from a previous +19 billion – ACY Finlogix).

France follows with its September Global Manufacturing PMI (f/c 49.8 from 50.6 – ACY Finlogix), French September Global Services PMI (f/c 50.5 from 51.2 – ACY Finlogix).

Germany follows next with its September Global Manufacturing PMI (f/c 48.3 from 49.1 – ACY Finlogix), German September Global Services PMI (f/c 47.2 from 47.7 – ACY Finlogix).

Next up is September Eurozone Global Manufacturing PMI (f/c 48.7 from a previous 49.6 – ACY Finlogix), Eurozone September Global Services PMI (f/c 49 from 49.8 – ACY Finlogix).

UK September Global Manufacturing PMI (f/c 47.5 from 47.3 – ACY Finlogix), and UK September Global Services PMI (f/c 50 from 50.9 – ACY Finlogix) are next.

Canada kicks off North America with its Preliminary August Manufacturing Sales (f/c -0.2% from -0.9% - ACY Finloigx), Canadian July Retail Sales (m/m f/c -2% from 1.1%; y/y f/c 3.5% from 11% - ACY Finlogix).

The US rounds up today’s releases with its September Global Flash Manufacturing PMI (f/c 51.1 from 51.5 – ACY Finlogix) and September Global Flash Services PMI (f/c 45 from 43.7 – ACY Finlogix).

US Federal Reserve President Jerome Powell is scheduled to speak, delivering opening remarks at a Fed Listens event in Washington DC. Traders will be looking out for what he has to say.

Trading perspective

Expect another volatile trading session in Asia today. Despite the Japanese official holiday today, the Bank of Japan will be monitoring today’s Yen movements.

As this writer knows from experience, the BOJ has asked its other Asian counterparts (central banks) to watch the Japanese currency.

FX traders will be watching bond yields and their respective moves today. They have been the main driver for the FX. At the end of the day, which is basic FX 101, interest rates and interest rate differentials drive currencies.

USD/JPY – The Dollar has steadied to open in Asia at 142.35. With Japanese markets closed today, traders are hesitant to push the currency until the rest of Asia come in. We could be in for more volatility. Immediate resistance lies at 142.65, 143.05 and 143.65. Immediate support is found at 142.00, 141.70 and 141.20. We could be in for another volatile session in USD/JPY today with a possible trading range of 141.00-144.00. While the trend is still higher for the Dollar/Yen pair, trading on extremes could be profitable. Be quick and nimble.

USDJPY

(Source: Finlogix.com)

GBP/USD – Sterling was met with heavy selling against the broadly based stronger Greenback. Overnight, the British Pound (GBP/USD) was hammered to an overnight and 2022 low at 1.1212 before spiking to its overnight high at 1.1364 following the BOE’s announcement of a rate hike. Sterling then slumped to its New York close at 1.1265. Immediate support lies at 1.1230 and 1.1200. Immediate resistance lies at 1.1300 and 1.1340. Look for further choppy trade. Likely 1.1220-1.1320. Trade the range, nice and wide.

AUD/USD – The Aussie Battler steadied to finish at 0.6645 from yesterday’s 0.6610. Overnight the AUD/USD pair was hammered to a low at 0.6574 against the broadly based stronger Greenback and weaker Asian and Emerging Market Currencies. Overnight high traded was at 0.6671. Immediate support lies at 0.6610 and 0.6580. Immediate resistance today lies at 0.6670, 0.6700 and 0.6730. Expect a choppy trading day, likely range 0.6580-0.6700.

EUR/USD – The Euro was stable, finishing little changed at 0.9837 from 0.9832 yesterday. The overnight low traded for the shared currency was at 0.9807. Immediate support today can be found at 0.9810 followed by 0.9780 and 0.9750. Immediate resistance lies at 0.9870, 0.9900 and 0.9930. Look for further choppy trade today, likely 0.9820-0.9920. Trade the range shag on this one today. But wouldn’t want to get short near the lows.

Welcome to Friday in what was a volatile week for FX. With US bond yields on the rise, the interest rate differentials have widened in favour of the Greenback. But we have had some huge moves and it is Friday, which could see a pullback in the making. Keep watching those US bond yields and the differentials today as a guide. Keep those tin helmets on, and get ready to rumble yet again.

RISK WARNING: Foreign exchange and derivatives trading carry a high level of risk. Before you decide to trade foreign exchange, we encourage you to consider your investment objectives, your risk tolerance and trading experience. It is possible to lose more than your initial investment, so do not invest money you cannot afford to lose。 ACY Securities Pty Ltd (ABN: 80 150 565 781 AFSL: 403863) provides general advice that does not consider your objectives, financial situation or needs. The content of this website must not be construed as personal advice; please seek advice from an independent financial or tax advisor if you have any questions. The FSG and PDS are available upon request or registration. If there is any advice on this site, it is general advice only. ACY Securities Pty Ltd (“ACY AU”) is authorised and regulated by the Australian Securities and Investments Commission (ASIC AFSL:403863). Registered address: Level 18, 799 Pacific Hwy, Chatswood NSW 2067. AFSL is authorised us to provide our services to Australian Residents or Businesses.

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