Dollar rally slows, key bond yield falls despite solid US CPI

Aussie, Euro, Asian/EMFX Rebound, Stocks Grind Higher

Summary: The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies eased 0.51% from a 13-month high to 94.04 (94.53). A pullback in the benchmark US 10-year treasury bond yield by 4 basis points to 1.54% dragged the US currency lower. While the September US Headline CPI climbed to 5.4% from 5.3% on an annual basis, the Core inflation number was unchanged at 4.0%. The FOMC minutes from the Fed’s September monetary policy meeting signalled that US policymakers could begin a gradual tapering process by mid-November. Short covering propelled the Euro 0.56% off a 2021 low to 1.1593 (1.1532 yesterday). The British Pound rallied to 1.3663 from 1.3590, a gain of 0.63%. Against the Japanese Yen, the US Dollar retreated 0.25% to 113.25 (113.60). The Australian Dollar pushed higher to 0.7378 from 0.7352 while the Kiwi (NZD/USD) climbed 0.61% to 0.6965 (0.6935). Asian and Emerging Market currencies had a better day against the Greenback. USD/SGD (US Dollar- Singapore Dollar) slid to 1.3520 from 1.3565 while USD/THB (US Dollar-Thai Baht) was last at 33.17 (33.35 yesterday). The Greenback slumped to 6.4300 Offshore Chinese Yuan (USD/CNH) from 6.4555.

Wall Street stocks had a better day with both the DOW and S&P 500 finishing with gains. The DOW was last at 34,403 (34,325). The S&P 500 closed at 4,367 from 4,337 yesterday.
Global bond yields were mostly lower. Germany’s 10-year Bund yield lost 4 basis points to -0.13%. Japan’s 10-year JGB yield was flat at 0.08%. The Australian 10-year Treasury bond yield dipped to 1.69% from 1.72% yesterday.

Data released yesterday saw Australia’s Westpac Bank’s Consumer Sentiment in September slump to -1.5% from 2.0% in August, and expectations of 2.4%. Japanese August Machinery Orders rose to 17% from 11.1%. New Zealand’s Preliminary ANZ Bank Business Confidence Index slid to -8.6 from a previously downward revised -7.2%. China’s September Trade Balance rose to +USD 66.8 billion from August’s +USD 58.3 billion. Chinese September Exports rose 17% on an annual basis, missing expectations of a 21% rise. Imports fell to 10.1% from 33.1%. The UK’s August GDP slumped to 4.1%, lower than estimates of 6.7%. UK August Industrial Production beat estimates, up 0.8% from 0.2%. UK August Manufacturing Production (m/m) rose 0.5% from 0.0%. The UK’s August Goods Trade Deficit climbed to -GBP 14.927 billion from a previous -GBP 12.07 billion in July. Germany’s Annual Industrial Production in August beat estimates at 5.1% against 4.7%. Eurozone Annual August Industrial Production rose to 5.1%, bettering median estimates at 4.7%.

• EUR/USD – The shared currency showed some life in it, rebounding to an overnight high at 1.1598 (1.1532 opening) before easing back to 1.1593 in late New York. Broad-based US Dollar weakness and better-than-expected German and Eurozone Industrial Production data lifted the Euro off its lows.
• USD/JPY – After hitting an overnight high at 113.80, a peak not seen since December 2018, the Greenback slumped to a 113.25 close in New York. The fall in the key US 10-year treasury bond yield by four basis points (1.54%) contrasted to that of Japan’s 10-year JGB rate which was unchanged (0.08%).
• AUD/USD – bounced back in true Battler fashion as speculative shorts scrambled to cover their bets. The Aussie closed at 0.7378 (0.7352 open yesterday). Overnight the AUD/USD pair traded to a high at 0.7382. The Battler faces a test today with the release of Australia’s September Employment report.
• GBP/USD – Sterling rallied on the back of the broadly based weaker US Dollar, settling near its highs at 1.3663 against 1.3590 yesterday. Gains in UK Industrial and Manufacturing Production were supportive of the British currency. GBP/USD traded to an overnight high at 1.3665.

On the Lookout: Economic data releases today start off with Australia’s M1 Inflation Gauge (no f/c, previous was 4.4%). Australian Employment Change for September will be closely watched (the forecasts range from Forex Factory’s -108,500 to ACY Finlogix’s -137,500). That’s a big range there so we can expect some fireworks. Watch for the revisions too. The Unemployment Rate is forecast at 4.8% from 4.5% with the Participation rate easing to 64.7% from 65.2% - ACY Finlogix). China follows with its September PPI (y/y f/c 10.5% from previous 9.5%). Chinese September CPI is next (y/y f/c 0.9% from previous 0.8% - ACY Finlogix). Japan releases its August Industrial Production (y/y f/c 9.3% from 9.3%), and Capacity Utilisation for August (f/c -0.2% from -3.4%). Switzerland starts off European data with its September PPI (m/m f/c 0.9% from 0.7%). The US rounds up today’s reports with its September Headline PPI (m/m f/c 0.6% from 0.7%, y/y f/c 8.7% from 8.3%) and Core PPI (m/m f/c 0.5% from 0.6%, y/y f/c 7.1% from 6.7%) – ACY Finlogix. Finally, US Weekly Unemployment Claims (f/c 319,000 from previous 326,000).

Trading Perspective: After trading to a 13-month high at 94.53, the Dollar Index (USD/DXY) retreated to 94.04. The US 10-year treasury bond yield dropped 4 basis points to 1.54% which saw US Dollar long bets head for the exits. Today, expect consolidation ahead of tonight’s US Headline and Core PPI numbers. The FOMC meeting minutes revealed that the US central bank could begin a gradual tapering process by the middle of next month. Speculation now leads to the other global central banks, and when they will start their own winding down of stimulus measures. We could see further unwinding of Dollar longs as we head into Friday’s US Retail Sales report.

• EUR/USD – The shared currency sprang back to life on short-covering and an overall weaker US Dollar. The EUR/USD pair closed at 1.1593, not far off its overnight high trade at 1.1598. Immediate resistance today lies at 1.1600 and 1.1630. We can find immediate support at 1.1570 and 1.1540. Looking for consolidation today in the shared currency in a likely range of 1.1550-1.1610. Prefer to sell into any Euro strength from current levels.
• AUD/USD – In true Battler fashion, the Aussie bounced off its 0.7323 overnight low to a 0.7378 finish in New York.  Overnight peak traded for the Aussie Battler was at 0.7382. Today sees the release of Australia’s Employment report where the expectations from economists are wide (a loss of -108,500 jobs to -137,500). That’s huge. Immediate resistance for the Aussie lies at 0.7400 followed by 0.7420 and 0.7450. Immediate support can be found at 0.7350, 0.7320 and 0.7300. We could be in for a wild one today, expect the Aussie to trade between 0.7325-0.7405 today. Prefer to sell on Aussie strength today but am prepared to trade both sides.

(Source: Finlogix.com)

• USD/JPY – The US Dollar slid to 113.25 from its 113.60 opening yesterday. Overnight low traded was at 113.23. Immediate support lies at 113.20 followed by 112.90. On the topside, immediate resistance can be found at 113.50, 113.80 and 114.10. A further fall in the US 10-year bond yield could see further selling of USD/JPY. Looking for a likely trading range today between 113.10-113.80. Just trade the range shag on this one, money to be made on both sides.
• GBP/USD – Sterling benefitted from the overall US Dollar weakness and stronger UK production data. The British currency hit an overnight peak at 1.3665 before settling at 1.3663 in New York (1.3590 yesterday). There are no major UK data releases today so the focus will be on US reports. On the day, immediate resistance lies at 1.3670 followed by 1.3700. Immediate support can be found at 1.3640, 1.3610 and 1.3570. Look to trade a likely and lively trading range today between 1.3580-1.3680. The preference is to sell into Sterling strength.