US bond yields keep rising, dollar index hits 10-month high

Slumps, AUD, NZD, JPY Fall; Asia/EMFX Tumble

Summary: Rising US Treasury bond yields continued unabated with the 2-year note closing above 0.305% (0.28% yesterday), an 18-month high.

Global bond yields also extended their rallies though the differential remained well in favour of the US Dollar. A surprise fall in US Consumer Confidence to a seven-month low due to the rise in Covid-19 cases was ignored by Dollar bulls. Growing expectations that the Federal Reserve will begin reducing its monthly bond purchases as soon as November and lift interest rates in 2022 supported rising US bond yields. The benchmark US 10-year note climbed 5 basis points to 1.54%, its highest level since June. The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major foreign currencies, climbed to hit a 10-month high at 93.74 (93.40 yesterday). Sterling led the currencies lower against the Dollar, tumbling 1.23% to 1.3534, and finishing as worst performing major. The recent fuel shortage in the UK raised fears of a hit to the British economy despite hawkish leanings from the Bank of England. The Euro eased modestly to 1.1684 from 1.1695 yesterday. Risk leader, the Australian Dollar slumped 0.61% to 0.7238 (0.7285) while the Kiwi (NZD/USD) lost 0.72% to 0.6960 (0.7009 yesterday). The Dollar broke higher against the Japanese Yen to finished 111.50 from 111.00, up 0.48%, matching a July peak. Against the Asian and Emerging Market currencies, the Dollar advanced further. USD/THB (US Dollar-Thai Baht) soared 0.89% to 33.85 (33.60). The Greenback settled at 1.3577 Singapore Dollars from 1.3535 yesterday.

Global equity prices slid with the US Dow losing 1.48% to 34,375. The S&P 500 was last at 4,360, down 1.86% from 4,443 yesterday. Global bond yields rose in tandem with those in the US. Germany’s 10-year Bund Yield rose to -0.20% from -0.22%. The UK 10-year Gilt yield rose 4 basis points to 0.99%. Japan’s Ten-Year JGB rate climbed to 0.08% from 0.05% yesterday.

Data released yesterday saw Australia’s August Retail Sales fall to -1.7%, bettering estimates at -2.5%. Japan’s BOJ Annual Core CPI rose to 0.3% from a previous 0.2%. Germany’s GFK Consumer Climate Index beat median forecasts of -1.6 to 0.3. The US September Goods Trade Deficit rose Balance Deficit rose to -USD 87.6 billion from -USD 86.8 billion in August, and slightly higher than forecasts at -USD 87.4 billion. The US August House Price Index eased to 1.4% from a previous upward revised 1.7% and median forecasts at 1.5%. US S&P Case Shiller Composite House Price Index fell to 19.9% from 19.1%, and forecasts at 20.1%. US Richmond Manufacturing Index dipped to -3 from 9, underwhelming expectations at 12. Finally, the US Consumer Confidence Index fell to 109.3 from 115.2 in August and median estimates at 115.2.

• GBP/USD – The British Pound sank 1.23% to 1.3535 from yesterday’s open at 1.3702 on growing fears that a fuel shortage would have negative consequences for the UK economy. Sterling hit an overnight low at 1.3511, before settling, and closing as the weakest major against the Greenback.
• AUD/USD – slip-sliding away, the Aussie Battler reversed its climb, weighed by the overall stronger US Dollar and falling Asian and Emerging Market currencies. Metal prices were lower. Dropping Iron ore and metal prices weighed on the Australian Dollar, which finished 0.61% lower at 0.7238 (0.7285).
• USD/JPY – Against the Japanese Yen, the Greenback extended its gains to 111.50 (111.00), matching July highs. The USD/JPY pair traded to an overnight peak at 111.64 before easing at the New York close.
• USD/SGD – Higher US bond yields favoured the Dollar and weighed heavily on the Asian and Emerging Market currencies. The US Dollar climbed to finish at 1.3577 Singapore Dollars (1.3535 yesterday), late August highs. Overnight high traded was at 1.3589.

On the Lookout: Data releases pick up today. The ECB Forum on Central Banking starts later today and highlights speeches from ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, Bank of Japan Governor Haruhiko Kuroda, and Federal Reserve President Jerome Powell. All are scheduled to speak and discuss on the topic of “Policy panel”.

Germany kicks off today’s data releases with its August Import Prices (m/m f/c 1.2% from 2.2%; y/y f/c 16.1% from 15% - ACY Finlogix). Italy follows with its August PPI (m/m no forecast, previous was -7.8), Switzerland follows with its September Economic Index (no f/c, previous was -7.8). Next up is the UK August Mortgage Approvals (f/c 73,000 from 75,000 – ACY Finlogix), UK August Net Lending to Individuals (f/c GBP 3.676 billion from previous GBP 1.4 billion). The Eurozone releases its Eurozone Final Consumer Confidence Index for September (f/c -4 from previous -5.3), Eurozone September Economic Sentiment Index (f/c 116.9 from 117.5). Canada follows with its Raw Materials Price Index (m/m f/c -1.4% from 2.2%), Canadian Final PPI for August (m/m -0.2% from -0.4%). US August Pending Home Sales (m/m f/c 1.4% from previous -1.8%; y/y no forecasts, previous was -8.5% - ACY Finlogix) round up today’s reports.

Trading Perspective: The drop in US Consumer Confidence to a seven-month low was ignored by the Dollar bulls. Expectations that the Federal Reserve will begin tapering its bond purchases in November will continue to buoy the Greenback. Meantime net speculative US Dollar long bets keep growing. Speeches from global central bank heads will be closely monitored by the markets today. Federal Reserve Chair Jerome Powell is the final speaker. Overnight, James Bullard, St Louis Federal Reserve President and FOMC member added to hawkish Fed speak, saying that high inflation may require more aggressive steps by the US central bank, including 2 rate hikes in 2022. Despite the hawkish rhetoric, a Fed taper for November is not yet a done deal. Would be cautious about pushing the US Dollar further north given current conditions.

• GBP/USD – Sterling was pounded overnight to finish as worst performing major against the Greenback. The GBP/USD pair tumbled to an overnight low at 1.3511 (January 2021 lows) before settling to close at 1.3534, down 1.23% from yesterday’s 1.3702. Despite a hawkish Bank of England, the recent fuel crisis threatens an already fragile UK economic recovery. GBP/USD has immediate support at 1.3510 followed by 1.3480. Immediate resistance can be found at 1.3560 followed by 1.3590 and 1.3620. Expect the Pound to trade heavy today but would be wary about taking it too much lower without any technical bounces. Likely range 1.3510-1.3610.

(Source: Finlogix.com)

• EUR/USD – Despite broad-based US Dollar strength, the Euro finished modestly lower at 1.1684 (1.1695 yesterday). The shared currency traded to an overnight low at 1.1668 before settling to its New York close. Overnight high traded for the Euro was at 1.1703. Trading in this currency has been subdued. The latest Commitment of Traders report saw net speculative Euro short bets increase. Expect the likely range for the Euro today between 1.1640-1.1710 today.
• AUD/USD – The Aussie Battler fell back to the lower end of its recent range, finishing at 0.7238 from 0.7285 yesterday. Overnight low traded was at 0.7225. The immediate support for today lies at 0.7220. The next support level can be found at 0.7200 (strong). Immediate resistance lies at 0.7265 followed by 0.7290 and 0.7320. Look for a likely trading range in the Aussie between 0.7210-0.7280. Just trade the range shag on this one for now.
• USD/JPY – Against the Japanese Yen, the US Dollar soared to an overnight high at 111.64 (111.00 yesterday) boosted by higher US bond yields. The Dollar settled at 111.50 Yen. For today, immediate resistance can be found at 111.70 followed by 112.00. Immediate support lies at 111.20 and 110.90 (overnight low traded was 110.93). The level of the US 10-year bond yield will continue to influence the Dollar-Yen pair. Likely trading range 111.20-70.
• USD/DXY – The Dollar Index soared to a 10-month high at 93.81 before settling at 93.74, up 0.37% from 93.40. Immediate resistance can be found at 93.90 followed by 94.20. Immediate support for today lies at 93.45 and 93.25. Look for the USD/DXY, a popular gauge of the Greenback’s value against a basket of 6 major currencies to trade a likely 93.35-93.85 range today.