• Michael Moran , Senior Currency Strategist at ACY Securities


• 08.09.2021 05:00 am
trading

Loonie Slumps, Will the BOC Pause Bond Purchase Cut?

Summary: The Australian Dollar tumbled to 0.7387 (0.7437) after the RBA kept rates steady and commenced it taper but extended QE by 3 months. Immediately following the meeting, the Aussie jumped to 0.7469 before fresh selling emerged. Elsewhere, ahead of the Bank of Canada’s meeting later today (12 am, Thursday, 9 September), the Canadian Loonie slumped 0.9% against the Greenback to 1.2647 from 1.2535 yesterday. The BOC was initially expected to further cut asset purchases at this meeting, but the consensus has changed to a delay until October. Meantime, the Dollar Index extended its advance to 92.55 from 92.22 as risk appetite soured. The Euro reversed its advance, slipping 0.27% to 1.1840 (1.1870). Sterling fell 0.39% to 1.3782 in late New York from 1.3835 yesterday. Against the Japanese Yen, the US Dollar rallied 0.43% to 110.30 from 109.85 yesterday. The Kiwi (NZD/USD), referred to by traders as the smaller cousin to the Aussie, slumped 0.55% to 0.7097 from 0.7135. Equity prices slipped while bond yields rose as investor risk sentiment soured. The Dollar was higher against the Asian and Emerging Market currencies. Against the Singapore Dollar, the Greenback was up 0.28% to 1.3462 (1.3427). USD/THB (Dollar-Thai Baht) jumped 0.67% to 32.70 from 32.45. The benchmark US Ten-year Treasury bond yield settled higher to 1.37% from 1.32% yesterday. Germany’s 10-year Bund yield rose to -0.32% from -0.37%. Australia’s 10-year Treasury rate was unchanged at 1.25%.

Wall Street stocks fell. The DOW ended 1% lower to 35,090 (35,447) while the S&P 500 was last at 4,517 from 4,545 yesterday.

Data released yesterday saw the UK BRC Retail Sales Monitor drop in August to 1.5% from a previous 4.7%, and lower than estimates at 3.2%. Japan’s Average Cash Earnings in July rose to 1.0% from an upwardly revised 0.1% in June, bettering forecasts at 0.8%. Japanese Annual Household Spending fell to 0.7%, missing median expectations at 2.6%. China’s August Trade Surplus rose to CNY 376 billion, beating estimates at CNY 323 billion. August Exports rose 25.65% (f/c 17.1%) while Imports climbed 33.1%, bettering forecasts at 29%. The RBA maintained its Overnight Cash Rate at 0.10% as expected. Germany’s July Industrial Production (m/m) rose to 1.0% beating estimates at 0.7%. German ZEW Economic Sentiment Index for September eased to 26.5 from a previous 40.4, and missing expectations at 30. The Eurozone ZEW Economic Sentiment Index for September fell to 31.1 from 42.7, underwhelming forecasts at 52.2. Eurozone Q2 GDP (q/q) rose to 2.2% from 2.0%, beating estimates at -0.6%. Eurozone Q2 GDP (y/y) rose to 14.3% from a previous 13.6% and estimates at 13.6%.

- AUD/USD – the Aussie had a choppy session after the RBA maintained rates and announced a delay in its taper by 3 months. AUD/USD immediately traded to 0.7469 from its 0.7437 opening. The Battler then tumbled to an overnight low at 0.7375 before settling to close at 0.7387. A souring of risk sentiment also weighed on the Aussie.

- USD/JPY – this currency pair rallied to settle at 110.30 at the close of North American markets. The Greenback opened against the Yen at 109.85 in Asia. Higher US treasury yields boosted this currency pair. The benchmark US 10-year bond yield was up 5 basis points t 1.37%. Japan’s 10-year JGB treasury rate was unchanged at 0.00%.

- EUR/USD – Against the backdrop of broad-based USD strength, the shared currency eased to 1.1840 from 1.1870 yesterday. Overnight the EUR/USD pair traded to an overnight low at 1.1837. Eurozone and Euro area economic data released yesterday were mixed overall.

- USD/CAD – the Dollar soared against the Canadian Loonie to 1.2647 from its Asian opening at 1.2535 yesterday. The Bank of Canada meets later today on interest rates with consensus that officials will wait until October before further reducing the asset purchases. USD/CAD hit an overnight high at 1.2656 while the overnight low traded was 1.2519. A fall in Oil prices did not help the Canadian Loonie.

On the Lookout: Today’s calendar sees US and Canadian data releases. Earlier, New Zealand’s Global Dairy Trade Price Index climbed to 4.0% from a previous 0.3%. Dairy is New Zealand’s chief export and accounts for approximately 35% for the world trade in dairy products. It is a vital driver of New Zealand’s economy. NZD/USD did not move from its 0.7097 level upon the release. Japan follows with its August Bank Lending (y/y f/c 1.0% from previous 1.0%). Japanese July Current Account is next (f/c +JPY 2,300 billion from previous +JPY 905.1 billion). Japan’s Q2 GDP (f/c 0.4% from 0.3%). Finally Japanese August Economic Watchers Outlook Sentiment rounds up Asia’s data (f/c 50.5 from 47.7). France starts off European reports with its July Current Account (f/c -EUR 1.4 billion from previous -EUR 0.5 billion). France’s July Trade Balance is next (no forecast, previous was -EUR 5.82 billion). Italy releases its July Retail Sales (m/m f/c 0.3% from 0.7%). RBA Assistant Governor Guy Debelle is scheduled to speak at an online conference hosted by TradeTech FX. This is of particular interest since it is an FX conference and Debelle is well versed on currency markets. The Bank of Canada is widely expected to keep its Overnight Rate at 0.25% followed by a Rate Statement. Canadian IVEY PMI for August follows (f/c 59.2 from previous 56.4). US data starts with July Consumer Credit (f/c USD 25 billion from previous USD 37.6 billion). US July JOLTS Job Openings round up the day’s primary economic reports (f/c 10.03 million from previous 10.07 million).

Trading Perspective: The Bank of Canada and the European Central Bank policy meetings are the next risk events. The Bank of Canada is widely expected to keep interest rates unchanged and wait until October before it cuts bond purchases further. The ECB meets on Thursday (9.45 pm Sydney time) and is expected to maintain its Main Refinancing Rate at 0.00%. Markets are divided as to whether the ECB will cut stimulus at this meeting. We can expect volatility in the FX markets.

- USD/DXY - The Dollar Index, a favoured gauge of the Greenback’s value against a basket of 6 major currencies has since rallied 0.70% after its initial slump following Friday’s dismal US Payrolls report. USD/DXY settled at 92.55 from 92.22 yesterday. Immediate resistance can be found at 92.60 followed by 92.90. The overnight high traded was 92.57. Near term support lies at 92.30 and 92.10. The bounce looks overdone in the short term. Look to sell rallies in a likely range today of 92.30-60.

- AUD/USD – The Aussie Battler tumbled following the RBA’s decision to delay its taper and extend QE (currently at AUD 4 billion/week) until at least mid-February 2022 saw sellers swamp the Aussie. AUD/USD has immediate support at 0.7370 (overnight low at 0.7375). The next support level is found at 0.7340, and 0.7310. Immediate resistance can be found at 0.7410 followed by 0.7440 and 0.7470 (overnight high traded was 0.7469). The Battler once again has that heavy feel, and we could see further selling emerge. However, the move overdone in the short term. Look to trade a likely range today between 0.7360-0.7420. Am a buyer on Aussie dips for today.

(Source: Finlogix.com)

- EUR/USD – Trade in the shared currency has been subdued this week following Friday’s US Payrolls report. The Euro traded to an overnight high at 1.1885 before slipping on the overall stronger US Dollar to its close at 1.1840. Yesterday the Euro opened at 1.1870. Immediate resistance lies at 1.1870 followed by 1.1900. Immediate support can be found at 1.1830 (overnight low at 1.1837). The next support level is found at 1.1800. Ahead of tomorrow’s ECB meeting, looking for consolidation in a likely range between 1.1820-90.

- USD/JPY – The Greenback jumped against the Japanese Yen to 110.30 from its 109.85 opening yesterday. Higher US bond yields and broad-based US Dollar strength lifted this currency pair. On the day, immediate resistance lies at 110.35 (overnight high traded 110.32) followed by 110.55 (mid-August highs). Immediate support can be found at 109.95 and 109.65. Look for a likely trade today between 109.80-110.40. Prefer to sell USD/JPY rallies.

Happy Wednesday and trading all.