Dollar Index climbs to 6-month peak – JPY weakens

Sterling slides, AUD outperforms; Yields tumble

Summary

The Dollar Index, a popular gauge of the Greenback’s value against a basket of 6 major currencies climbed to March 2023 highs, settling at 105.55 (105.40). Effects from the Fed’s hawkish pause last week continued to influence currencies.

Against the Japanese Yen, the US Dollar soared to 148.35 from Friday’s 147.58 after the Bank of Japan maintained its ultra-easy monetary policy. The BOJ kept its policy rate unchanged at -0.10%.

The Australian Dollar (AUD/USD), outperformed, edging higher against the Greenback to 0.6440 from 0.6415 Friday. Australia’s 10-year bond rate climbed 4 basis points to 4.34%.

US treasury bond yields eased. The 10-year treasury rate closed at 4.43% from 4.49%. Last week the 10-year yield rose above 5% for the first time since 2007. Other global rates were mostly lower. The UK’s 10-year Gilt yield was last at 4.24% (4.29%). Australia’s 10-year rate rose to 4.34% (4.29%).

The Euro (EUR/USD) dipped to 1.0655 from 1.0660 against the broadly-based stronger US Dollar. On Friday, the shared currency traded to an overnight and near 6-month low at 1.0615.

Sterling slid to 1.2240 (1.2290 Friday). The British Pound continued to weaken following last week’s decision of the Bank of England to keep its policy rate unchanged. Which halted a string of 14 consecutive rate increases.

The Greenback was mixed against the Asian and Emerging Market currencies. The USD/CNH pair (Dollar-Offshore Chinese Yuan) dipped to 7.2985 (7.3135). Against the Thai Baht, the Dollar (USD/THB) settled at 36.02 from 36.12 Friday. The USD/SGD pair was little changed, at 1.3650.

Wall Street stocks eased. The DOW finished at 33,980 (34,040 Friday). The S&P 500 was last at 4,322 from 4,327 on Friday. Global equities were mixed. Australia’s ASX 200 soared to 7,045 (6,972 Friday).

Economic data released Friday saw Japan’s National Core CPI (y/y) at 3.1%, unchanged from 3.1%, and higher than forecasts at 3.0%. UK Retail Sales rose 0.4%, up from -1.2% previously, but lower than estimates at 0.5%. UK CBI Industrial Order Expectations eased to -18 from -15 previously.

Canada’s August Retail Sales climbed to 0.3% from 0.1% previously but missed forecasts at 0.4%. The US Flash Manufacturing PMI rose to 48.9 from 47.9 previously. US Services PMI eased to 50.2 (50.5).

• USD/JPY – The Greenback soared to an overnight and near 10-month high at 148.41 from Friday’s 147.58 before settling at 148.37 at the New York close. On Friday, the Bank of Japan maintained its ultra-easy policy. Some market participants had expected a policy shift. The overnight low traded was 147.50.

• EUR/USD – Edged modestly lower against the Greenback to close at 1.0655 from 1.0660 Friday. The Euro plummeted to an overnight low at 1.0615 after initially rallying to 1.0671, which was the overnight high. Broad based US Dollar strength weighed on the Euro.

• AUD/USD – The Aussie Battler outperformed, finishing 0.3% higher against the Greenback at 0.6440. The Australian Dollar weakened against the US Dollar to an overnight low at 0.6403. The strong performance of Australia’s ASX 200 share market boosted the Aussie.

• GBP/USD – Sterling slid to close at 1.2240 against Friday’s opening at 1.2290. UK Retail Sales, released on Friday, rose 0.4% but disappointed analysts who had expected a 0.5% rise. A fall in the UK Industrial Order Expectations to -18 from -15 previously weighed on Sterling.

On the lookout

The week ahead begins with a light economic calendar today. In Asia, the RBA’s Assistant Governor Bradley Jones, a former IMF banker, is scheduled to speak today.

There are no major economic data releases out of Asia today. Germany starts off European data with its September IFO Business Climate (f/c 85.2 from 85.7- ACY Finlogix).

The UK follows with its UK CBI September Distributive Trades (f/c -23 from -44 previously – ACY Finlogix).

The US releases its Chicago Fed National Activity Index (f/c 0.15 from 0.12 – ACY Finlogix) and US Dallas Fed Manufacturing Business Index for September (no f/c, previous was -17.2 – FX Street).

The US also releases its July Housing Price Index (m/m f/c 0.1% from 0.3% - FX Street); US September Consumer Confidence (no forecasts, FX Street), US August New Home Sales (f/c 0.7 million from 0.714 million – FX Street).

Trading perspective

While the Dollar Index (USD/DXY) finished stronger on Friday, much of that strength was against the Japanese Yen.

The Japanese currency carries a 13.6% weight in the Dollar Index. Against the other major currencies, the Greenback was mixed.

The easing of US treasury bond yields following last week’s climb will keep a lid on the Greenback.

Expect the Dollar to drift lower against most of its Rivals in the earlier part of this week.

• AUD/USD – The Aussie Battler outperformed, rallying 0.39% against the Greenback to close at 0.6440 (0.6415). On the day, look for immediate resistance at 0.6470 and 0.6500 to cap any strong rallies. Immediate support can be found at 0.6400 (overnight low traded was 0.6403). The next support level lies at 0.6370. Look for the Aussie to consolidate in a likely range today of 0.6400-0.6470. Prefer to sell Aussie rallies today.

• USD/JPY – Against the Japanese Yen, the Greenback climbed to an overnight and near 10-month high at 148.41 before to 148.37. It was more a case of Yen weakness than US Dollar strength due to disappointment from some market participants following the BOJ’s rate decision on Friday. Some market participants expected the BOJ to drop its guidance to take additional easing measures. Immediate resistance today is found at 148.50 followed by 148.80. Immediate support lies at 148.00, 147.70 and 147.40. Look for a choppy day ahead, likely range: 147.50-148.50. Expect more rhetoric against Yen weakness from Japan Inc.

Source: Finlogix.com

• EUR/USD – Slip-sliding away, the Euro dipped to 1.0655, little changed from Friday’s opening at 1.0660. On the day, immediate support can be found at 1.0610 followed by 1.0580 and 1.0550. Immediate resistance lies at 1.0680 (overnight high traded was 1.0671). The next resistance level lies at 1.0710. Look for the Euro to trade in a likely range today of 1.0610-1.0710. Trade the range.

• GBP/USD – The British Pound slumped to 1.2240 from Friday’s 1.2290. On the day look for immediate support at 1.2200 and 1.2170 to hold. Immediate resistance can be found at 1.2270, 1.2300 and 1.2340. Look for more choppy trade in the GBP/USD pair. Likely range today: 1.2180-1.2280. Preference is to sell Sterling on rallies and not chase it lower from current levels.