Forex today: USD/CNY to fresh highs weighing on risk

Forex overnight was ransacked by the USD/CNY fixing above 6.90 which sent the Yuan above the 7 handle of which we have seen an extension to fresh highs at 7.1399 in early Asia, so far. However, the US Dollar dropped heavily as well as US yields fell, sinking to fresh lows as US stocks turned into another rout, with the biggest drop in the S&P on record and it would appear that the bears are not about to pack-up their picnic and go home yet. Data was not pretty either, with the US ISM services index fell to a three-year low of 53.7 in July, below expectations (55.7) - However Markit’s July service sector PMI was upgraded to 53.0 from a preliminary 52.2.

There is a growing sense that these moves are only the beginning and that they have been entirely justified considering the major implications for how bad things are under the surface of zero interest rate supported economies, with central bank policies borne out of the 2008 financial crisis now coming to a head with very little ammunition left on the table to bail out the next recession - For the 2008 crisis was merely patched up and was never really properly resolved.

Volatility is here to stay. The VIX is at 24.59 +6.98 (39.64%) currently, levels last seen at the turn of the year. Indeed, we are likely in for another rough ride in Asia today, with the Japanese Nikkei is following suit in the Tokyo open, opening down heavily while earlier news came with the US Treasury officially calling out China as a currency manipulator. 

• USD/CNH rallies to fresh highs as US Treasury calls China a currency manipulator

Currency action

Analysts at Westpac broke down the price action in the G10 space:

"Defensive currencies outperformed and risky currencies underperformed the US dollar. EUR/USD rose from 1.1120 to 1.1210, the euro almost keeping up with traditional safe-haven Swiss franc (+0.9%). USD/JPY tumbled from 106.60 to a seven-month low of 105.79 in Tokyo trade Monday as the yuan fell but then consolidated in London and NY trade.

AUD/USD ranged in the mid-0.67s, preserving yesterday’s 0.5 cent fall on the CNY surprise. NZD remained above yesterday’s one-month low of 0.6489, firming to 0.6530. AUD/NZD extended a multi-month decline to 1.0342 – the lowest since March – with AUD hit harder by US-China trade tensions once again."

Key notes from Wall Street: 

Wall Street ends in a sea of red on trade war re-set, biggest decline of the year for S&P 500

Asia events today:

"Australia should print another historically large trade surplus in June (11:30am Syd/9:30am Sing/HK). Indeed Westpac forecasts a record high $A6.2bn surplus, driven by a spike in iron ore prices. This should help boost exports 0.8%mth, a gain limited by softer LNG volumes and lower coal prices. We see little change in imports on the month," analysts at Westpac explained.