Dollar plummets against Yen as BoJ rate hike bets rise

AUD extends fall on lower metals; US yields, DXY steady

Summary:

The US Dollar plummeted against the Japanese Yen to 155.60 from 157.37. Rising expectations of a BOJ rate hike at their policy meeting next week weighed on the Greenback.

The Japanese currency outperformed, climbing against other FX pairs, such as the Euro, Sterling and Australian Dollar. The AUD/JPY cross pair plunged 1.17% to 102.95 from 104.05 yesterday.

In the US, the withdrawal of US President Joe Biden paved the way for Vice President Kamala Harris as the Democratic nominee. Odds still favored a victory for Republican rival, Donald Trump.

The Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies, steadied to finish at 104.45 (104.35).

The USD/CNH (Dollar-Offshore Chinese Yuan) steadied to 7.2850 (7.2950). China’s central bank (People’s Bank of China) lowered its 1-and 5-Year Prime Loan rates by 10 basis points each.

The Australian Dollar (AUD/USD), underperformed, extending its slide to 0.6615 from 0.6690. Base metal prices continued to tumble. Copper prices lost 2% while Iron Ore slid to 3-week lows. Australian miners reported strong annual production for the current fiscal year.

Sterling (GBP/USD) dipped to 1.2905 (1.2915) after the British currency traded to 1.3013 last week, a one-year high. Traders bet on a potential Bank of England rate cut in August.  

The Euro (EUR/USD) eased to 1.0853 from 1.0885 yesterday. Last week the ECB left its Main Policy Rate unchanged, at 4.25%. Markets are betting on 2 more rate cuts by the ECB this year.

Against the Asian and Emerging Market currencies the Greenback (USD/EMFX) finished mixed. The USD/SGD pair (Dollar-Singapore Dollar) was little changed, at 1.3455 from 1.3452 while USD/THB (Dollar-Thai Baht) slumped to 36.15 (36.35).

Global bond yields were mostly higher. The US 10-Year Treasury yield climbed to 4.25% from 4.24%. Germany’s 10-year Bund yield eased to 2.43% (2.46%). Japan’s 10-Year JGB rate climbed to 1.05% from 1.03%.

Global stocks eased modestly. The DOW dipped 0.27%, finishing at 40,350. The S&P 500 settled at 5,568 against 5,587. Japan’s Nikkei eased to 39,500 (39.690).

• USD/JPY – The Greenback plummeted to 155.60 Japanese Yen from 157.37 previously. Growing expectations of a rate hike from the Bank of Japan at the conclusion of their meeting lifted the Yen, enabling the Japanese currency to outperform its peers.
• AUD/USD – The Aussie Battler was pummeled lower to 0.6615 from 0.6690 as base metal prices continued their slide. Losses in Iron Ore and Copper, Australia’s top exports, weighed on the Australian Dollar. The Aussie hit an overnight low of 0.6611.
• GBP/USD – Sterling dipped to 1.2905 from 1.2915 previously. The British currency was pounded to an overnight and one-week lows at 1.2888 before steadying. Traders noted cross sales of GBP/JPY, which weighed on GBP/USD, on the hawkish BOJ outlook.
• EUR/USD – The shared currency eased further to 1.0853 from 1.0885 yesterday. The Euro traded to 1.0844 fresh overnight and one-week lows before steadying. Large parcels of EUR/JPY sales also weighed on the EUR/USD pair.

On the lookout:

Australia kicks off today’s busy economic calendar releases with its Judo Bank July Flash Manufacturing PMI (f/c 47 from 47.2 – ACY Finlogix). Japan follows with its Jibun Bank July Flash Manufacturing PMI (f/c 50.9 from 51.2 – ACY Finlogix), Japanese Jibun Bank July Services PMI (f/c 49.9 from 49.4 – ACY Finlogix). Germany starts off Europe with its German GFK August Consumer Confidence (f/c -21 from -21.8 – ACY Finlogix).

France releases its July Flash Manufacturing PMI (f/c 45.8 from 45.4 – ACY Finlogix), French July Flash Services PMI (f/c 49.8 from 49.6 – ACY Finlogix). Germany follows with its German HCOB July Flash Manufacturing PMI (f/c 44 from 43.5 – ACY Finlogix), German HCOB July Flash Services PMI (f/c 53.1 from 53.1 – ACY Finlogix).

The Eurozone follows with its Eurozone HCOB July Flash Manufacturing PMI (f/c 46.1 from 45.8 – ACY Finlogix), Eurozone HCOB July Flash Services PMI (f/c 53 from 52.8 – ACY Finlogix). The UK follows with its S&P July Global Flash Manufacturing PMI (f/c 51.1 from 50.9 – ACY Finlogix), UK S&P July Global Flash Services PMI (f/c 52.5 from 52.1 – ACY Finlogix).

Canada starts off North America with its Canadian June New Housing Price Index (m/m f/c 0.1% from 0.2%; y/y f/c 0.2% from 0.0% - ACY Finlogix).

The US rounds up today’s data releases with its US June Final Building Permits (m/m f/c 3.4% from -2.8% - ACY Finlogix), US S&P July Global Manufacturing PMI (f/c 51,7 from 51.6 – ACY Finlogix), US S&P July Global Services PMI (f/c 54.4 from 55.3 – ACY Finlogix).

Trading perspective:

The Dollar Index (USD/DXY) steadied to 104.45 from 104.35 as markets continued to assess the US political landscape. With the announcement of Kamala Harris as the Democratic nominee, former President Donald Trump still led the race although his margin had narrowed. While the Dollar Index has steadied, it is still lower than it was a few months ago.
Markets will turn their focus on upcoming economic data releases which include global Flash Manufacturing and Services PMIs. Economists expect mixed results.

• USD/JPY – Look for more volatile trade in this currency pair. Immediate support today lies at 155.50 (overnight low traded was 155.58). The next support level lies at 155.20 followed by 154.90. On the topside, immediate resistance can be found at 156.00, 156.40 and 156.90 (overnight high traded was 156.93). Look for more choppy trade today, likely between 155.20-157.20. Tin helmets on, let’s get ready to rumble!

• AUD/USD – The Aussie Dollar underperformed, tumbling to 0.6615 from 0.6690 previously. Look for immediate support at 0.6600 followed by 0.6570 and 0.6540. Immediate resistance can be found at 0.6650 (overnight high traded was 0.6646). The next resistance level lies at 0.6680 and 0.6710. Look for the Aussie to consolidate in a likely range today of 0.6570-0.6720. Get those tin helmets on for this currency pair too.
• EUR/USD – The shared currency eased to 1.0853 from 1.0885 against the overall stronger Greenback. Look for immediate support at 1.0840 (overnight low traded was 1.0844). The next support level lies at 1.0810 and 1.0780. Look for immediate resistance today at 1.0900 (overnight high traded was 1.0897). The next resistance level can be found at 1.0940 followed by 1.0980. Look for the Euro to trade in a likely range today of 1.0820-1.0920. Prefer to sell Euro rallies.
• GBP/USD – Sterling dipped to 1.2905 from 1.2915 previously. Immediate support for the British currency lies at 1.2885 followed by 1.2855. Immediate resistance today lies at 1.2935 (overnight high traded was 1.2934). The next resistance level can be found at 1.2955. Immediate support today lies at 1.2880 followed by 1.2850 and 1.2820. Look for the British Pound to trade a likely range today of 1.2870-1.2950. Prefer to sell rallies.

Happy trading all. Have a top Wednesday ahead.