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EUR, AUD, NZD Lead Fall; USD/JPY Dips, Commodities Sink
Summary: The hawkish shift from the US Federal Reserve sent Dollar bears running for cover and pushed commodity prices lower. The Dollar Index (USD/DXY), a gauge of the Greenback’s value against a basket of 6 major currencies hit its highest level since mid-April at 91.90 (91.25). After recently hitting a 13-week peak, net speculative USD shorts against ten IMM futures scrambled for cover. The Euro sank to an overnight low at 1.18916 from yesterday’s 1.2005 opening before settling at 1.1905 at the New York close. USD/CHF (Dollar-Swiss Franc) jumped 1.02% to 0.9178 (0.9078), The Swiss National Bank left its Policy Rate unchanged at -0.75% and said it would maintain its expansionary monetary policy. Risk leaders the Aussie (AUD/USD) and Kiwi (NZD/USD) were hit hard. The Australian Dollar fell 0.9% to 0.7547 (0.7615) despite an upbeat Australian Employment report. A strong rise in New Zealand’s Q1 GDP (+1.6% against f/c of +0.5 % q/q) could not save the Kiwi which slumped 1% to 0.6999 (0.7058 yesterday). The British Pound (GBP/USD) ended down 0.59% at 1.3997 (1.4080). Against the traditional haven sought Japanese Yen, the Dollar was lower at 110.28 from 110.65 yesterday. The Greenback soared against the Asian and EMS Currencies. USD/CNH settled at 6.4575 (6.4385), its highest close since mid-May. The USD/SGD pair soared to overnight high at 1.34428, settling at 1.3427, its highest finish since mid-April. US Bond yields were mixed. The 10-year Treasury rate fell to 1.50% from 1.57% while the 2-year US bond yield was up one basis point to 0.21%. Commodity prices sank with Silver losing 4.4% to USD25.95 (USD27.32). Brent Crude Oil slipped 1.83% to USD 73.02 (USD 74.10). Wall Street stocks eased. The DOW lost 0.41% to 33,810 (34,037) while the S&P 500 settled at 4,222 (4,226).
Australian Employment in May saw an addition of 115,200 Jobs, beating estimates at 30,000. Australia’s Unemployment Rate fell to 5.1%, better than forecasts at 5.5%. Eurozone May CPI matched forecasts, rising 0.3% (m/m). Eurozone May Core Annual CPI rose to 1.0% against forecasts of a 0.9% rise. US Weekly Unemployment Claims climbed to 412,000 from 376,000 the previous week, and higher than estimates at 359,000.
On the Lookout: Today’s economic calendar is light and will give markets time to pause following the Fed’s hawkish surprise. The Dollar extended its rally with some big advances overnight against some its rivals, including most Asian currencies. While this is not surprising, the question is where do we go from here? Other central banks are expected to follow the Fed’s lead. The Bank of Japan meets on interest rates today (1 pm Sydney) followed by its policy statement and press conference. The BOJ is expected to maintain policy and keep its policy rate unchanged at -0.1%. The Bank of England meets on interest rates next week.
Today’s data kicks off with Japan’s Headline and Core CPI data for May. Headline Inflation (y/y) is forecast at -0.7% from the previous -0.4%. Japan’s National Core CPI (y/y) is forecast to rise to +0.1% from April’s -0.1%. Europe kicks off with Germany’s May PPI report (m/m f/c 0.7% from 0.8% and y/y f/c 6.4% from 5.2%). The Eurozone releases its April Current Account (March was +EUR 31 billion). The UK releases its Headline May Retail Sales (m/m f/c 1.6% from April’s 2.9% and y/y f/c at 29% from 42.4%).
Trading Perspective: Given its Friday and with a slow economic calendar ahead of us, expect markets to take a breather with the Dollar consolidating its gains. Traders will look to the Bank of Japan’s policy announcement and press conference which follows a few hours later. The Dollar’s rally in the past 48 hours has mainly been the result of short covering. Expect more of this in the days ahead following a period of consolidation. Beyond that though, can the Greenback’s rally sustain itself? Many remain bearish on the USD expecting other central banks to follow the Fed’s lead and start tapering. Without yield support though, the Dollar will struggle to climb higher. It’s the yield differentials that matter. This writer thinks that they will go back in the Dollar’s favour and USD may be building a base to climb higher. Time will tell.
Happy Friday and trading all.
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