Forex today: A whipsawed FX space on forever changing trade headlines and sentiment

• Risk rallies and Dollar holds in higher grounds the 97 handle, highest in five days. 
• USD/JPY and AUD/USD best performers. 
• Tariffs on hold on some imports until December. 

Forex today was a mixed bag following a US Consumer Price Index, (CPI), print that came in on the slightly hot side which could be disruptive to Wall Street's plans on easier financial conditions. However, on the flipside, risk-on took off in a series of good-news trade headlines.

The Yen was the weakest and the Aussie was the strongest - but the pessimist in the market will look at these as opportunities to buy yen cheaper and sell the Aussie at a discount in anticipation of further upsets along the way. Mody's was very quick to nip such relief in the market's reaction in the bud early with a statement that argued that the relations between the US & China will remain "contentious, punctuated with occasional steps towards compromise."

The step forward that they were referring to do today was the news that the US announced that September tariffs would be delayed until Dec on some China imports while other goods would be exempt which followed reports that communications between the US and China had opened up again, with Trump stating his administration had a very productive call with China and that he thinks Beijing wants to do something drastic on trade. The US representatives, Mnuchin and Lighthizer, had a productive call with Chinese Vice Premier Liu and talks will also resume (via phone) in two weeks times. On the flip side of this, Hong Kong risk escalated on reported that China was moving troops to the border and that the US could have had some hand on inciting the demonstrations. 

US CPI comes in hot

Meanwhile, US CPI printed in line with market expectations in July at 0.3% MoM, pushing annual inflation up 0.2%pts from June to 1.8%. 

"Core inflation (ex-food and energy) was a touch stronger than expected, also at 0.3% m/m, which saw the annual measure lift to 2.2% from 2.1% in June. While there appears to be some temporary strength in the details (airline fares, tobacco), two consecutive 0.3% m/m rises for core inflation may give some policymakers cause to believe inflation pressures are a touch stronger than previously assumed,"

analysts at ANZ bank explained. 

As for yields, the US 2-year treasury yields rose from 1.56% to 1.67%, the 10-year yield from 1.62% to 1.70%. "Markets are pricing 26bp of easing at the 19 September Fed meeting, and a terminal rate of 1.13% (Fed funds rate currently 2.13%)," analysts at Westpac argued. 

Currency action

Analysts at Westpac broke down the key moves in the US session as follows:

• "EUR/USD fell from 1.1240 to 1.1170."
• "USD/JPY soared from 105.40 to a high of 106.98 on the tariff headlines, the yen the day’s worst performer."
• "Outperformer AUD rose from 0.6747 to 0.6818 then steadied around 0.6800."
• "NZD initially dipped to 0.6422 following the US CPI data but then rose to 0.6472 on the trade news."
• "AUD/NZD rose from 1.0480 to 1.0535."

Key notes from Wall Street

Wall Street kicks back on trade war headline Turnaround-Tuesday

Key events ahead

• At 10:30am Syd/8:30am Sing/HK  - Australia August consumer sentiment from Westpac and the Melbourne Institute. 
• At 11:30am Syd/9:30am Sing/HK  - Aussie wages "We should have confirmation of another quarter of sluggish wages growth in Australi," analysts at Westpac said. 
• China’s July activity data is released at 12pm Syd/10am local time. "June was unexpectedly strong, with industrial production up 6.3% y/y, retail sales 9.8% y/y," analysts at Westpac noted.