Dollar extends gains vs rivals on hawkish Fed speak

Summary: The US Dollar maintained its bid versus its Rivals following the release of the latest FOMC meeting minutes. A favourite gauge of the US currency’s value against a basket of its major Rivals, the Dollar Index (USD/DXY) settled 0.87% higher to 107.50 (106.70) at the close of trade in New York. While FOMC members saw a greater risk from inflation expectations, concern from “many” that it could over-tighten saw US bond yields little changed. The benchmark US 10-year treasury yield was last at 2.89% against 2.90% yesterday. Comments from some Fed officials leaning toward a 75-basis point rate hike next month lifted the Greenback. Earlier in the day, the Aussie Dollar (AUD/USD) collapsed to 0.6911 after Australia’s economy showed a loss of 40,900 jobs overall, way below median forecasts for a gain of 26,500 jobs. The Aussie Battler plunged to an overnight low at 0.6899 from 0.7020 pre-Jobs data, before steadying to 0.6920 in late New York. Yesterday in Asia, the Kiwi (NZD/USD) tumbled to 0.6275 (0.6345) after the Reserve Bank of New Zealand raised its Overnight Cash Rate by 50 bp. RBNZ Governor Adrian Orr said he was not forecasting a recession, but he did see sub-par growth. Which saw the Kiwi slump further to finish at 0.6257. The British Pound (GBP/USD) slid through the 1.2000 support level to finish at 1.1932 (1.2045 open yesterday). UK inflation rose to 10.1% annually, beating forecasts at 9.8%, and its highest level in over 40 years. Expectations of another 50 bp rate hike by the Bank of England when they meet next month failed to lift Sterling. A firmer Greenback coupled with mixed Fed speak weighed on the British currency. The Euro (EUR/USD) slid to 1.0087 from 1.0175 yesterday after Germany’s Finance Ministry said in its August monthly report that the outlook for further development of the economy is currently noticeably gloomy due to “a high degree of uncertainty.” The USD/JPY grinded higher to 135.87 (135.10). Against the Asian and Emerging Market currencies, the Greenback was mostly higher. USD/CNH (Dollar-Offshore Chinese Yuan) rose to 6.8025 (6.7900) while the USD/THB (Dollar-Thai Baht) pair climbed to 35.65 from 35.50 yesterday.

Wall Street stocks settled with modest gains in volatile trade. The DOW was last at 34,000 (33,947) while the S&P 500 rose to 4,285 from 4,265 yesterday.

Other economic data released yesterday saw Australia’s July Unemployment Rate dip to 3.4% from 3.5%. Switzerland’s Trade Surplus beat median estimates for +CHF 3.55 billion to +CHF 3.58 billion. The Eurozone’s July Final Annual CPI matched median expectations at 8.9 %, while Annual Core CPI rose 4.0%, also matching estimates at 4.0%. Canada’s RMPI (Raw Materials Price Index) plunged to -7.4%, lower than forecasts at -3.9%. The US Philadelphia Fed Manufacturing Index rose to 6.2 from a previous -12.3, and higher than economist’s forecasts at -4.9. US July Existing Home Sales dipped to 4.81 million from a previous 5.11 million, lower than estimates at 4.87 million. US Conference Board Leading Index (m/m) bettered forecasts at -0.5%, with a -0.4% print.

EUR/USD – The Euro reversed its gains yesterday, sliding to a 1.0087 New York close from 1.0175 open. Broad-based US Dollar strength amidst a gloomy economic outlook for Germany, Europe’s largest economy weighed on the shared currency. Overnight low traded was at 1.0079 while the high recorded was at 1.0194.

AUD/USD – The Aussie Battler was battered overnight, plunging to a low at 0.6899 before steadying in late New York to settle at 0.6920. A surprise fall in Australia’s overall Employment coupled with broad-based US Dollar strength weighed on the Australian Dollar. Overnight high traded was at 0.6970.

GBP/USD – Sterling was pounded lower to a 1.1932 finish in New York from 1.2045 yesterday. Despite a 40-year high in UK inflation and the likelihood of a 50 bp rate hike from the Bank of England when they meet next month, Sterling traded heavy against the Greenback, bolstered by mostly hawkish Fed speak.

NZD/USD – New Zealand’s Kiwi had its wings clipped, tumbling 0.37% to 0.6257 from yesterday’s 0.6275. The “Bird” failed to benefit from the RBNZ’s 0.5 bp rate hike against the broadly based stronger US Dollar. Traders focussed on comments from RBNZ Governor Orr that forecast low GDP growth. In volatile trade, the overnight low hit was at 0.6238 while the high recorded was at 0.6313.

On the Lookout: Today’s economic calendar is light, but we can continue to expect choppy trade on a Friday. Earlier today, New Zealand released its July Trade Balance, which turned into a deficit, of -NZD 1,092 million against estimates of +NZD 105 million. New Zealand’s June Trade Deficit was revised higher to -NZD 1,102 million from -NZD 701 million. The Kiwi (NZD/USD) edged lower to 0.6245 currently from its opening at 0.6257. Japan followed with its July Annual Core Inflation Rate which matched forecasts at 2.4% against a previous 2.2%. Japan’s Annual Headline Inflation Rate rose to 2.6% from June’s 2.4%. Following the release, the USD/JPY pair eased to 135.74 from its opening at 135.87. New Zealand follows with its Annual Credit Card Spending (no f/c, previous was 3.5%). Germany kicks off European data with its July PPI report (m/m f/c 0.6% from 0.6%; y/y f/c 32% from 32.7% - ACY Finlogix). Next, the UK releases its July Retail Sales report (m/m f/c -0.2% from -0.1%; y/y f/c -3.3% from -5.8% - ACY Finlogix). Switzerland follows with its Annual Industrial Production report (no f/c, previous was 7.9%). The Eurozone follows with its June Current Account (s.a.no f/c previous was -EUR 4.49 billion). Canada starts off North American data with its June Headline Retail Sales (m/m f/c 0.3% from 2.2% - ACY Finlogix), Canadian Core (excluding Autos) Retail Sales (m/m f/c 0.9% from 1.9% - ACY Finlogix).

Trading Perspective: The Dollar’s advance extended against most of its Rivals as we head into Friday trade. We can expect more volatile moves ahead. Fed speak has seen mixed signals as to the size of the September rate hike which will keep markets on their toes. Early next week (Tuesday) sees the release of Global Manufacturing and Services PMIs. With a light economic calendar today, we can expect consolidation at current levels. Traders will most likely be adjusting positions today heading into a busy week ahead. Speculative market positioning is currently long of US Dollars against various Rivals. On a day like today, being a Friday, look for adjustments to cap further US Dollar advances against its Rivals from current levels.

EUR/USD – The sharp turnaround in the Euro to finish 0.92% lower to 1.0087 from yesterday’s 1.0175 opening does not auger well for the shared currency. The move opens the door to an attack at Parity. On the day, look for initial support at 1.0080 followed by 1.0050 and 1.0020. On the topside, immediate resistance can be found at 1.0120, 1.0150 and 1.0180. Look for another volatile session in this currency pair, likely range 1.0040-1.0140.

AUD/USD – Slip-sliding away, the Aussie plunged following the release of poor Australian Employment data. Overnight, the AUD/USD pair slid to a low at 0.6899 from 0.6930 yesterday. On the day, look for immediate support at 0.6900 followed by 0.6870 and 0.6840. On the topside, immediate resistance lies at 0.6950, 0.6980 and 0.7010. Expect another choppy session in the Aussie, likely range today 0.6870-0.6970. Aussie is still a sell on rallies but at current levels am prepared to trade both sides.

(Source: Finlogix.com)

GBP/USD – Sterling tumbled to finish at 1.1932 from 1.2045 open yesterday as bearish sentiment on the Pound rose. A break of the 1.2000 psychological level saw the GBP/USD pair trade to an overnight low at 1.1923. On the day, look for immediate support at 1.1920 followed by 1.1890. Immediate resistance lies at 1.1970, 1.2000 and 1.2030. Look for another volatile session in this currency pair, likely range 1.1870-1.2000. Trade the range shag, nice and wide.

NZD/USD – The Kiwi got its wings clipped despite the RBNZ’s 50 bp rate hike, which was widely expected. Comments from RBNZ Governor Orr weighed on the “Bird” which fell to an overnight low at 0.6238 before steadying to 0.6257 in late New York. Immediate support lies at 0.6235 followed by 0.6205 and 0.6185. On the topside, immediate resistance is found at 0.6280, 0.6310 (overnight high traded was 0.6313). The next resistance level lies at 0.6340. Look for further choppy trade in a likely range of 0.6220-0.6320. Look to sell into Kiwi strength, “shoot the Bird down”, as traders said in the day.