Yields, dollar slip, kiwi bid, RBNZ outlook likely upbeat

Summary: The key US 10-year bond yield slipped to 4-week lows at 1.56% (1.60% yesterday) as Fed Officials continued to downplay rising inflation concerns. Richard Clarida, Fed Vice-Chair stuck to the party line saying that the recent rise in inflation will be temporary. A favourite measure of the US Dollar’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) eased to 89.67 from 89.83. New Zealand’s Kiwi Dollar (NZD/USD) finished bid at 0.7225 (0.7218) heading into today’s RBNZ Interest Rate meeting (12 noon, Sydney). The RBNZ is expected to leave policy settings unchanged and upgrade their economic forecasts. Australia’s Dollar (AUD/USD) was little changed at 0.7750 (0.7752). Elsewhere, Germany’s IFO Business Climate Index climbed to 99.2 from 96.8 and beating median estimates at 98.2. The Euro extended its grind higher, hitting an overnight peak at 1.22663 before settling at 1.2246 (1.2215 yesterday). Sterling steadied, finishing at 1.4147 from 1.4153 yesterday. Against the Yen, the Greenback eased to 108.72 from 108.82. The USD/CNH (US Dollar-Offshore Chinese Yuan) pair settled at 6.4100 after attempting to breach 6.4000 (overnight low 6.3911). According to a Reuters report, Chinese state-banks were seen purchasing Dollars around the 6.40 level. The US Dollar eased to 1.3250 Singapore Dollars (1.3275 yesterday).
Other global bond rates were lower. Germany’s 10-year Bund yield was down 3 basis points to -0.17% (-0.14%). The UK’s 10-year note slipped 3 basis points to 0.78%. Wall Street stocks dipped. The DOW was last at 34,325 (34,430) while the S&P 500 lost 0.33% to 4,190 (4,200).

Other data released yesterday saw Eurozone Final Q1 GDP slip to -1.8% from -1.7% previously, missing estimates at -1.7%. Britain’s Conference Board Realised Sales Diffusion Index fell to 117.2, missing estimates at 119.0. US April House Price Index rose 1.4% beating forecasts of 1.1%. US S&P/Case Shiller Composite-20 HPI rose 13.3% from a previous 12.0%, beating expectations of 12.6%. Finally, US Richmond Manufacturing Index rose to 18.0 from 17.0 previously but missed forecasts at 19.0.

(Source: Finlogix.com)

NZD/USD – The Kiwi kept its bid, finishing 0.17% higher at 0.7225 (0.7217). NZD/USD traders were optimistic into the RBNZ’s interest rate meeting and press conference. NZD/USD hit an overnight high at 0.7250 before easing to settle at 0.7225. New Zealand’s central bank is expected to upgrade their economic forecasts.

AUD/USD – This time it was the Aussie that struggled to keep up with the Kiwi, finishing little changed at 0.7750. The Aussie Battler traded to an overnight high at 0.7776, immediate resistance area, before easing to settle at the 0.7750 level.

EUR/USD – The single currency grinded higher against the Greenback, reaching an overnight peak at 1.22663, near 4-month highs, before easing to 1.2245 in late New York. A stronger than expected result in Germany’s IFO Business Climate Index reflected optimism in Europe’s largest economy and buoyed the Euro.

USD/CNH – The Greenback dipped briefly under the psychological and key 6.40 CNH level to an overnight low at 6.3911 from yesterday’s 6.4100 open. A Reuters report that Chinese State Banks were purchasing Greenbacks lifted the USD/CNH pair back above 6.40 to close at 6.4100. The 6.40 level is key for now, and its likely to hold.

On the Lookout: All eyes on the RBNZ’s rate decision and statement, which is today’s main risk event (12 noon Sydney). New Zealand’s central bank could be the next to follow the Bank of Canada and reduce stimulus later this year. The Kiwi retains its bid tone into the meeting, suggesting that the speculators are currently holding long bets. The RBNZ Press Conference follows at 3 pm Sydney. Markets will be keenly monitoring RBNZ Governor Orr’s remarks. Tin helmets on.
New Zealand’s Balance of Trade, just released, saw the country’s surplus increase to +NZD 388 million in April from a previous +NZD 39 million (revised up from +NZD 33 million), beating estimates at +NZD 90 million. The Kiwi currently sits at 0.7224, unchanged from its NY close.
Other data scheduled for release today are Australia’s Q1 Construction Work Done (forecast to rise to 2.2% from a previous -0.9%). Westpac Bank also releases its Leading Economic Index (April). Japan releases its Leading Economic Index (Final) for March. Europe kicks off with French May Consumer Confidence (f/c to rise to 97 from 94) and May Business Confidence (f/c at 106 from 104). The only primary US report due for release is the US EIA Crude Oil Stocks Change (May).

Trading Perspective: Lower US bond yields kept the Greenback under pressure against its peers. However, other global treasury rates were also easier, just to a lesser degree. Meantime the latest COT CFTC report saw speculative market positioning maintain an overall Dollar short position against ten IMM currency pairs. Among the majors, the Canadian Dollar saw the biggest rise in speculative long bets against the Greenback. While the overall bearish sentiment on the Greenback remains intact, the speculative market is still sitting short the US currency. Which implies consolidation at current levels. As for the Kiwi, speculative long Kiwi bets are at risk should the RBNZ disappoint.

EUR/USD - The Euro traded in a relatively tight range between 1.2211-1.2266, settling at 1.2247, a gain of 0.27%. Stronger than expected German Business Confidence lifted the single currency to a 4-month high overnight. The single currency has immediate resistance at the 1.2270/80 level. A clean break of this level could see 1.2310. Immediate support can be found at 1.2210 followed by 1.2180. Net total speculative Euro bets increased (5,900 lots) in the week ended 18 May. Look for a likely trading range today of 1.2210-1.2270. Prefer to sell rallies given the current market positioning.

NZD/USD – The Kiwi maintained its bid, finishing in New York at 0.7225 (0.7218 yesterday). The Bird traded to an overnight high at 0.7250 before easing at the close. Immediate resistance can be found at 0.7250. The next resistance level lies at 0.7280 followed by 0.7310. Immediate support lies at 0.7200 and 0.7170. Traders and investors expect the RBNZ will upgrade their economic forecasts. The latest COT/CFTC report saw speculative Kiwi long bets maintain their positions. Look for a likely trading range between 0.7170-0.7270. Could be fun and games in the Bird today.

AUD/USD – finished virtually flat at 0.7750 after trading in a 0.7733-0.7776 range overnight. Immediate resistance for the Aussie lies at 0.7780 followed by 0.7810. Immediate support can be found at 0.7720 followed by 0.7680. Total net speculative long Aussie bets were the smallest among the majors in the latest COT report. Likely range today 0.7700-0.7780.

USD/SGD – The Greenback eased against the Singapore Dollar to close at 1.3250 (1.3280 yesterday). Lower USD/Asians weighed on this currency pair. There is immediate support for USD/SGD at 1.3240 followed by 1.3210. Immediate resistance can be found at 1.3290 (overnight high 1.2896). The next resistance level lies at 1.3320. Expect the USD/SGD to consolidate in a likely 1.3240-1.3290 range today. Prefer to buy dips near recent lows at 1.3240/50.