• Michael Moran , Senior Currency Strategist at ACY Securities


• 07.09.2021 05:15 am
trading

USD Holds Mild Gains, EUR, GBP Flat, USD/JPY Climbs

Summary: The Dollar held on to modest gains, finishing little changed with US and Canadian markets closed to celebrate Labour Day. Despite a surge in German Factory Orders in July, the Euro was flat at 1.1872 (1.1877). The Dollar Index (USD/DXY), a favoured gauge of the US currency’s value against a basket of 6 major currencies, ended at 92.20 from 92.13 yesterday. Ahead of today’s RBA monetary policy meeting, the Australian Dollar held steady, to 0.7438 (0.7458). The RBA will keep interest rates on hold, as widely expected. The timing of the Australian central bank’s taper prospects amidst a recent surge in Delta variant cases remains in question. Against the Yen, the Greenback edged up to 109.85 (109.70). Sterling slipped to 1.3835 from 1.3855 yesterday following the release of weaker-than-forecast UK Construction PMI for August. The Kiwi was last at 0.7135 (0.7155), down 0.18%. Asian and Emerging Market currencies were mixed. The USD/THB (Dollar – Thai Baht) ended flat at 32.45 while USD/SGD (Dollar – Singapore Dollar) rose to 1.3427 from 1.3412. US Treasury bond markets were closed. Germany’s 10-year Bund yield was last at -0.37% from -0.36%. UK 10-year Gilt rates were last at -0.69% (-0.67% yesterday). Australia’s 10-year Treasury yield was up 3 basis points to 1.25%.

Global equities kept their gains in thin trade aided by hopes that interest rates around the world would stay low for longer.

Data released yesterday saw Australia’s TD Inflation Index in August rise to 0.5% from a previous -0.4%. Germany’s July Factory Orders surge to 3.4%, beating forecasts at -1.0%, but still less than June’s 4.1%. UK August Construction PMI in August slid to 55.2 from 58.7, missing estimates at 57.0.

The Eurozone Sentix Investor Confidence Index for September printed at 19.6 matching median forecasts at 19.0, but lower than the previous 22.2.

- AUD/USD – The Aussie eased back to settle at 0.7438 from its Asian opening at 0.7458 yesterday. The RBA will keep its Overnight Cash Rate on hold (0.10%). The race between high vaccination take-up and the surging Delta variant continues. The RBA’s taper timing plans are in focus.

- EUR/USD – The shared currency extended its featureless trade, settling flat at the familiar 1.1870 level. Holidays in the US and Canada didn’t help. Overnight range for the EUR/USD pair was a tight 1.1856-1.1886, thirty pips.

- USD/JPY – Against the Japanese currency, the Greenback edged higher to 109.85 in late New York (109.70 yesterday). Risk appetite remains healthy, and this is keeping a bid on this currency pair.

- GBP/USD – the British Pound dipped to 1.3838 from 1.3858 yesterday. A slump in UK Construction PMI to 55.2 from a previous 58.7 which missed median expectations at 57.0 weighed on Sterling.

On the Lookout: Today markets will pick up. Today’s economic calendar release is heavy while US and Canadian markets return from their 3-day weekend. Australia kicked off with its August AIG Services Index which fell to 45.6 from 51.7 in July. Japan just released its Household Spending for July (m/m fell to -0.9% against forecasts at +1.1%, y/y fell to 0.7% against estimates at 2.9%). Australia releases its July Final Building Permits (m/mf/c -8.6% from -5.5% - ACY Finlogix). China releases its August Trade Balance (f/c Surplus of USD 51.05 billion from July’s Surplus of USD 56.5 billion – ACY Finlogix). Imports (y/y f/c 26.8% from 28.1%) Exports (y/y f/c 17.1% from 19.3%).

The RBA Interest Rate Decision (2.30 pm Sydney time – f/c Overnight Cash Rate - no change at 0.1%).

Switzerland kicks off Europe with its Unemployment Rate for August (f/c 2.8% from 2.8% - ACY FInlogix). Germany’s July Industrial Production follows (f/c 0.9% from -1.3%). German ZEW Economic Sentiment Index for September (f/c 30 from 40.4 – ACY Finlogix). Next up is UK Halifax House Price Index for August is next (m/m f/c 1.1% from 0.4%) which rounds up today’s data.

Trading Perspective: Expect a slow day in Asia today which is par for the course following a holiday in the US. The highlight is the RBA’s interest rate policy meeting and statement which will impact the Aussie. While the Australian central bank will keep its interest rates on hold, questions remain on when they are likely to taper their bond purchases. Following the last RBA meeting, Governor Philip Lowe said that officials viewed direct fiscal stimulus as more effective in addressing the economic issue than monetary policy. While some economists say that the RBA will taper at this meeting, most traders say that they will hold off due to the worsening Delta variant situation in the country.

- AUD/USD – The Battler eased to 0.7435 from 0.7455 following its rebound after last week’s poor US Jobs report. Overnight, the Aussie traded to a high at 0.7455. Which is immediate resistance for today. Overnight low traded was at 0.7426. If the RBA announces a taper, the Aussie will jump to between 0.7490 and 0.7500, where it’s a good sell. If the RBA delay the taper to say later this year or early next year, the Aussie will slump back to the mid 0.73 area. If the RBA signal a taper at its next meeting, the Battler will ease back to the low 7400 area, which is immediate support, and consolidate. The Aussie could treat us to some fireworks today.

(Source: Finlogix.com)

- NZD/USD – Expect the Kiwi to mirror its bigger cousin today to a lesser degree. NZD/USD closed at 0.7135 from 0.7155 yesterday. Overnight low traded for the Kiwi was at 0.7127. Immediate support on the day lies at 0.7120 followed by 0.7090. Immediate resistance can be found at 0.7160 (overnight high traded was 0.7161). The next resistance level lies at 0.7200. Look for a likely range today of 0.7120-70.

- EUR/USD – The Euro continues to trade in familiar ranges in a subdued manner. This week sees the ECB policy meeting (Thursday) and hopefully the outcome will breathe some life into the EUR/USD pair. The shared currency traded to an overnight high at 1.1886. Immediate resistance today lies at 1.1890. The next resistance level is at 1.1910 and 1.1940. Immediate support can be found at 1.1850 (overnight low traded was 1.1856). The next support level lies at 1.1820 and 1.1790. Prefer to sell rallies in a likely range today of 1.1850-1.1900.

- GBP/USD – Sterling eased to 1.3835 from 1.3855 yesterday weighed by the overall stronger Greenback as well as a dismal UK Construction PMI report for August. GBP/USD traded to an overnight low at 1.3818. Immediate support for Sterling is found at 1.3815 followed by 1.3785. Immediate resistance can be found at 1.3870 (overnight high traded was 1.3868). The next resistance level is at 1.3900, and 1.3930. Traders should be looking to sell rallies in a likely range today of 1.3810-1.3870.

Have a good Tuesday ahead all, happy trading.