Dollar eases, stocks soar, yields fall on softer US PPI

Aussie, Kiwi, Euro rebound, USD/JPY dips, US CPI next

Summary

A softer than expected rise in US producer prices (PPI) in July, up 0.1% against estimates of 0.2% lifted Wall Street stocks. The Dollar Index (USD/DXY), which weighs the value of the Greenback against a basket of 6 major FX, eased to 102.59 (103.10).

US July Consumer inflation numbers (CPI) are due tonight (Sydney 10.30 pm). Federal Reserve Atlanta President Ralph Bostic reiterated that he’ll be ready to cut rates “by the end of the year.”

FX risk leader the Australian Dollar (AUD/USD) rebounded on improved market sentiment as well as a more hawkish RBA. The AUD/USD climbed to 0.6635, up from 0.6590 previously.

Against the Japanese Yen, the US Dollar steadied to 146.80 from 147.30 following a rapid unravelling of Yen “carry trades” that saw USD/JPY plunge from 150.90 at the start of the month.  FX strategists, however, were hesitant to declare the end of the carry trade unwind.

Ahead of today’s Reserve Bank of New Zealand (RBNZ) monetary policy meeting and announcement (12 noon today, Sydney), the Kiwi (NZD/USD) climbed to 0.6075 from 0.6025. The RBNZ is expected to keep the Official Cash Rate unchanged at 5.50%.

The Euro (EUR/USD) climbed against the Greenback to 1.0997 from 1.0937. Breaking through the resistance level of 1.0950, the shared currency saw an overnight high of 1.10.

Sterling (GBP/USD) soared to 1.2867 from 1.2770, buoyed by a drop in the UK’s Unemployment Rate to 4.2% from 4.4% as well as the softer read in the US producer prices.

Against the Asian and Emerging Market Currencies the US Dollar (USD/EMFX) eased. The USD/CNH  (Dollar-Offshore Chinese Yuan) pair tumbled to 7.1475 from 7.1840.

The USD/SGD pair (Dollar-Singapore Dollar) slid 0.55% to 1.3172 from 1.3237 previously. Against the Thai Baht, the US Dollar (USD/THB) slipped to 35.00 from 35.12.

Wall Street stocks soared. The DOWrallied to 39,760 from 39,420 while the tech laden NASDAQ rocketed to 19,000 (18,575), a gain of 2.5%. Japan’s Nikkei rose 2.3% to 36,465 (35,865).

Global bond yields eased. The US 10-year yield dropped to 3.84% from 3.94% the 2-year bond rate settled at 3.93% (4.01%). Germany’s 10-year Bund rate closed at 2.18% from 2.22%.

Other economic data released yesterday saw the UK’s Claimant Count Change climb to 135K from an upward adjusted 36.2K previously, beating estimates at 14.5K.

Germany’s ZEW Economic Sentiment Index slid to 19.2 from 41.8 previously, and lower than forecasts at 37.6. The Eurozone ZEW Economic Sentiment Index fell to 19.2 from 41.8, missing median estimates at 37.6.

• AUD/USD – The Aussie Battler soared to 0.6635 from 0.6590 as the market’s risk sentiment improved. Overnight, the AUD/USD pair traded to a high of 0.6638 while the overnight low recorded was 0.6579.
• USD/JPY – The Dollar-Yen pair dipped to 146.80 from 147. 30 in more subdued trade following several volatile sessions. Overnight, the Dollar ratcheted to a high of 147.95 before easing. The overnight low recorded for USD/JPY was 146.59.
• EUR/USD – The shared currency rallied against the Greenback to finish at 1.0997, up from 1.0937 previously. Despite a drop in both German and Eurozone ZEW readings, the Euro was buoyed by an overall softer US Dollar. The overnight low traded was at 1.0943.
• GBP/USD – Sterling soared against the US Dollar to finish in New York at 1.2867 from 1.2770 yesterday. Overnight, the British Pound traded to a high at 1.2874 while the overnight low recorded was at 1.2757 in another choppy session.

On the lookout

Markets will be focused on the release of the US CPI report, due out tonight (10.30 pm Sydney time). Prior to that, today’s economic calendar is light and starts off with the RBNZ’s monetary policy meeting and announcement. The RBNZ is widely expected to keep the Overnight Cash Rate unchanged, at 5.50%. Following the announcement is the RBNZ’s press conference, where markets will be scrutinizing remarks from RBNZ Governor Adrian Orr.

The UK kicks off Europe with its UK July Headline CPI (m/m f/c 0.1% from 0.1%; y/y f/c 2.3% from 2.0% - ACY Finlogix), UK July Core CPI (m/m f/c 0.1% from 0.2%; y/y f/c 3.4% from 3.5% - ACY Finlogix). The Eurozone follows with its Eurozone Q2 GDP Growth Rate (q/q f/c 0.3% from 0.3%; y/y f/c 0.6% from 0.5% - ACY Finlogix), Eurozone Employment Change (q/q f/c 0.2% from 0.3%; y/y f/c 0.9% from 1.0% - ACY Finlogix) and Eurozone June Industrial Production (m/m f/c 0.7% from -0.6%; y/y f/c -2.9% from -2.9% - ACY Finlogix). The US rounds up today’s economic data releases with its July (CPI) Inflation Rate (m/m f/c 0.2% from -0.1%; y/y f/c 2.9% from 3.0% - ACY Finlogix), and US July Core CPI (m/m f/c 0.2% from 0.1%; y/y f/c 3.2% from 3.3% - ACY Finlogix).

Trading perspective

All eyes on the US inflation numbers due out later tonight (10.30 pm Sydney). Until then, expect consolidation for FX pairs with a generally weaker Greenback following the softer US Producer Price Index numbers. If the US Headline CPI climbs more than expected, say to 0.3% or higher, the Greenback will rebound off current levels at 102.60. A softer than expected CPI read, particularly in the Core CPI, say to 0% (against median expectations of 0.2%), the Greenback will plummet. Expect strong support in the DXY at 102.20 to be tested. A strong Annual Core inflation number of say 3.5% (against forecasts of 3.4%) will see the Dollar Index surge to test 103.30 resistance level first up. Expect another choppy trading session in the FX markets today. Keep those tin helmets ready.

• AUD/USD – The Aussie rebounded on risk-on, to 0.6635 from 0.6590, forcing shorts to cover. Look for immediate resistance today at 0.6655 followed by 0.6685 and 0.6705. On the downside, immediate support can be found at 0.6605 followed by 0.6575 and 0.6545. Heading into the US CPI number, look for the Aussie to trade a likely range today of 0.6570-0.6650. Prefer to sell Aussie on strength today.

• USD/JPY – The US Dollar steadied against the Yen, closing at 146.80 from 147.30 yesterday. Look for immediate support at 146.50 (overnight low traded was 146.59). The next support level lies at 146.20. On the topside, immediate resistance can be found at 147.30, 147.80 and 148.10. Look for more choppy trade in this currency pair, likely between 146.50-148.50. Trade the range, nice and wide.
• EUR/USD – the shared currency extended its recovery against the US Dollar, settling at 1.0997, up from 1.0937 yesterday. On the day, look for immediate resistance at 1.1020 followed by 1.1050. On the downside, immediate support can be found at 1.0940 followed by 1.0910 and 1.0880. Look for more choppy trade in the Euro, likely between 1.0930 and 1.1030. Prefer to sell Euro on strength today.
• GBP/USD – Sterling soared against the US Dollar to finish at 1.2867 from 1.2770 yesterday. A fall in the UK’s Unemployment Rate coupled with an overall softer Greenback lifted the British currency. Immediate resistance today is found at 1.2900 and 1.2930. On the downside, look for immediate support at 1.2830, 1.2780 and 1.2730. Expect Sterling to consolidate today, likely between 1.2780 and 1.2880.

Happy trading. Have a good Wednesday ahead all.