DXY, stocks rebound, AUD steadies – RBA hawkish hold

USD/JPY stabilizes, Sterling slides on BoE rate cut bets

Summary:

The Dollar Index (USD/DXY), which weighs the value of the Greenback against a basket of 6 major currencies rebounded to 102.95 (102.70). US Stocks led by the S&P 500 soared following a rout which began this week.

The USD/JPY pair stabilized to finish at 144.75 (144.00) as Yen carry trades were unwound. Yen carry trades, ie borrowing at low rates in Japan to fund purchases of higher yielding assets elsewhere, were unwound following the Yen’s strong rally against the US Dollar earlier this week.

The Australian Dollar (AUD/USD) steadied to 0.6525 (0.6510) after the RBA left rates on hold but warned that inflation remains too high. On Monday, the Aussie tumbled to as low as 0.6350.

Sterling (GBP/USD) renewed its fall, settling at 1.2690 from 1.2810 following last week’s Bank of England rate cut, its first cut since 2020. Traders anticipate faster rate reductions from the BOE.

The Euro (EUR/USD) was flat, settling at 1.0930 (1.0925). A strong rise in Germany’s Factory Orders, up 3.9% from -1.7%, was offset by a drop in Eurozone Retail Sales (-0.3% from 0.1%).

Against the Asian and Emerging Market Currencies, the Greenback finished with modest gains. The USD/CNH pair (Dollar-Offshore Chinese Yuan) climbed to 7.1605 from 7.1575. USD/SGD (Dollar-Singapore Dollar) edged up to 1.3260 (1.3250).

Global bond yields rebounded following their slump on Monday. The US 10-year treasury yield closed at 3.89% (3.79%). The UK 10-year Gilt rate was last at 3.92% from 3.83% previously.

Wall Street stocks rallied led by the S&P 500, which rebounded to 5,235 from 5,199 previously The UK’s FTSE climbed to 8,070 (7,960). Australia’s ASX 200 rallied to 7,670 from 7,630.

Other economic data released yesterday saw Australia’s Building Permits in June down -6.5%, against forecast of -3.5%. The US Trade Deficit dipped to -USD 73.1 billion from -USD 75 billion.

• AUD/USD – The Aussie Battler steadied to finish at 0.6525, modestly higher from 0.6510 previously. Following the RBA’s rate decision, the Aussie traded to an overnight low at 0.6472 before rebounding at the close. The AUD/USD pair traded to a high of 0.6541.
• USD/JPY – The Greenback stabilized, closing at 144.75 from 144.00 previously. The unwinding of carry trades in the Yen lifted the US Dollar. In another choppy session, the overnight high recorded was at 146.37 while the overnight low was 144.04.
• GBP/USD – Sterling plummeted to finish at 1.2690 from 1.2810 in a continued reaction to last week’s Bank of England rate cut. The British currency was pounded to an overnight low at 1.2674 before stabilizing. The GBP/USD pair saw a high at 1.2803.
• EUR/USD – The Euro steadied to finish at 1.0930 from 1.0925 previously. The shared currency rallied to an overnight high at 1.0963 before running out of steam. The overnight low recorded for the EUR/USD pair was at 1.0904.

On the lookout:

Today’s economic calendar data is light. New Zealand kicked off earlier this morning with its Ǫ2 Employment Change, which beat forecasts, climbing to 0.4% from -0.2%. New Zealand’s Unemployment Rate settled at 4.6%, better than estimates of 4.7%. The previous quarter’s Jobless Rate was revised upward to 4.4% from 4.3%.

The Kiwi (NZD/USD) climbed to 0.5975 from its opening of 0.5955 immediately after the release. Australia’s July AIG Industry Index rose to -20.7 from -25.6 previously, and better than forecasts of -22. The Australian Dollar was unchanged following the report. Japan follows next with its June.

Preliminary Leading Economic Index (f/c 109.30 from 111.20 – ACY Finlogix). Germany kicks off Europe with its German Industrial Production for June (m/m f/c 1% from -2.5% - ACY Finlogix), German June Balance of Trade (f/c +EUR 23.5 billion from +EUR 24.9 billion – ACY Finlogix).

The UK follows with its July Halifax House Price Index (m/m f/c 0.2% from -0.2%; y/y f/c 1.2% from 1.6% - ACY Finlogix). Canada starts off North American with is IVEY PMI (f/c 60 from 62.5 – Forex Factory). The US rounds up today’s data releases with its June Consumer Credit Change (f/c USD 10 billion from USD 11.35 billion previously – ACY Finlogix).

Trading perspective:

Despite stabilizing overnight, the market’s risk appetite remains shaky. The rebound in Wall Street stocks steadied investor nerves but sentiment is still unsteady. The USD/JPY pair steadied as Yen carry trades were unwound. However, the situation is still a bit uncertain, ie we are not quite out of the woods yet. Expect Asia to start off nervously today with the US Dollar holding its overall support.

• USD/JPY – After closing in New York at 144.75, look for immediate resistance today in the USD/JPY pair at 145.00, followed by 145.50 and 146.00. On the downside, immediate support can be found at 144.20 followed by 143.70. Until the share markets stabilize, look more choppy trade in this currency pair, likely between 143.00-146.00. Trade the range, nice and wide.
• AUD/USD – The Aussie Battler steadied to 0.6525 at the New York close from its 0.6510 opening. Following strong selling earlier this week, which saw the Aussie pummeled to a low of 0.6350, we can expect consolidation. Immediate support today lies at 0.6490 followed by 0.6460 and 0.6420. On the topside, look for immediate resistance at 0.6530 and 0.6570. Look for the Aussie to trade in a likely range today of 0.6440-0.6540 first up. Tin helmets on, expect a nervous start today.

• GBP/USD – Sterling was pounded lower to finish at 1.2690 from 1.2810 previously. Look for immediate support at 1.2660 (overnight low traded was 1.2672). The next support level lies at 1.2630. Immediate resistance can be found at 1.2730, followed by 1.2780 and 1.2830. Look for the British Pound to trade a likely range today of 1.2650-1.2780. Trade the range, nice and wide here too.
• EUR/USD – The shared currency finished flat at 1.0930. On the day, look for immediate support at 1.0900 followed by 1.0870 and 1.0840. Immediate resistance can be found at 1.0970 and 1.1000. Look for the Euro to consolidate in a likely range between 1.0880- 1.0980. Prefer to sell Euro rallies.

Tin helmets on – expect another choppy day in FX. Have a top Wednesday ahead, happy trading all.