Dollar Mixed; Risk FX Rallies, Yen Weakens, US Yields Rise

  • Michael Moran , Senior Currency Strategist at ACY Securities

  • 24.06.2021 08:30 am
  • trading

Fed’s Kaplan, Bostic See Rate Hikes in 2022, BOE Up Next

Summary: The Dollar finished mixed, higher against the Yen but lower versus Risk currencies, the Aussie and Kiwi. Higher US bond yields were offset by disappointing New Home Sales data which recorded a fall in May. US Federal Reserve Presidents Kaplan (Dallas) and Bostic (Atlanta) both saw rate hikes in 2022. Boston Fed President Rosengren saw US inflation higher than 2% next year although he saw this moderating in 2022.USD/JPY rallied to 111.103 overnight and April 2020 highs, easing to settle around 111.00 in late New York. Risk appetite stayed healthy which saw the Aussie and Kiwi again finish as best performing currencies for the second day running. AUD/USD finished up 0.25% to 0.7575 (0.7599 overnight high) while the NZD/USD closed at 0.7045 (0.7025 yesterday). The Euro was modestly lower at 1.1925 (1.1938) while Sterling ended little changed at 1.3957 (1.3950). Against the Asian and Emerging Market currencies, the Greenback was mostly stronger due to higher US treasury rates. USD/SGD rose to 1.3458 (1.3440). The USD/THB (US Dollar-Thai Baht) pair soared 0.4% to 31.85 (31.70 yesterday). Against the Offshore Chinese Yuan, the US Dollar (USD/CNH) eased to 6.4775 (6.4800).
Wall Street stocks
eased. The DOW was last at 33,930 (33,985) while the S&P 500 dipped to 4,243 from 4,253. The benchmark US 10-year Bond Yield rose 2 basis points to 1.49%. Two-year US Treasury rates closed at 0.26% from 0.23% yesterday. Elsewhere Germany’s Ten -year Bund yield slipped to -0.18% from -0.17%. Japan’s 10-year JGB yield was unchanged at 0.04%.
Australia’s Flash Manufacturing PMI
eased to 58.4 from a downward revised 59.9 previously. The Eurozone’s Flash Manufacturing PMI beat expectations, rising to 63.1 from 62.1. Canada’s April Retail Sales slumped to -5.7% against expectations of -5.1%. US Flash Manufacturing PMI rose to 62.6 from 62.1 previously and beating estimates at 61.5. US Flash Services PMI though underwhelmed, falling to 64.8 from 70.4, missing forecasts at 70.0. US New Home Sales fell to 769,000 from a downward revised 817,000 (863,000) and lower than median forecasts at 864,000.

  • USD/JPY – rose to trade to an overnight and 15-month high at 111.210, settling around the 111.00 level. Markets extended their appetite for risk while the US 10-year bond yield climbed 2 basis points to 1.49%. Japan’s 10-year JGB yield was unchanged at 0.04%.
  • AUD/USD – The risk leading Aussie Dollar extended its rally off Friday’s 0.7470 low to an overnight peak at 0.7599. AUD/USD settled at 0.7575 at the close of trade in New York.
  • EUR/USD – finished modestly lower at 1.1925 from 1.1937 yesterday despite a better-than-expected Eurozone Flash Manufacturing PMI report. Germany’s 10-year Bund yield eased to -0.18% in contrast with the US 10-year rate which rose 2 basis points to 1.49%.
  • GBP/USD – Sterling settled to close at 1.3958 in New York from its 1.3950 open yesterday. The British currency hit an overnight high at 1.4001 before easing in subdued trade. The Bank of England meets on interest rates later today.

On the Lookout: Today’s economic calendar is fairly light. Today’s big event is the Bank of England’s monetary policy meeting and announcement. The BOE is expected to keep interest rates at record lows while maintaining its asset purchase program. While inflation has exceeded forecasts (UK CPI rose 2.1% in May) market consensus is that spikes will be transient. Traders are expecting more optimistic economic forecasts from BOE policymakers.
Economic data releases today (Finlogix calendar and forecasts) kick off with Japan’s Foreign Bond Investment (last was at JPY 410.6 billion). Europe follows next with France’s June Business Confidence Index (f/c 109 from 107). Germany follows with its IFO Business Climate for June (f/c 100.6 from May’s 99.2). The Bank of England is forecast to keep its Official Bank Rate at 0.1% and its Quantitative Easing amount at GBP 785 billion. The US reports on its Weekly Jobless Claims (f/c 380,000 from the previous week’s 412,000). US Final Q1 GDP Growth Rate is forecast to rise to 6.4% from the previous 4.3%. The GDP Price Index is expected to rise to 4.3% from 1.9%. US May Headline Durable Goods Orders (May) are expected to climb to 2.8% from April’s -1.3%. Core Durable Goods Orders (May) are forecast to ease to 0.8% from the previous 1.0%. The US Goods Trade Deficit is forecast to rise to -USD 87.4 billion (FX Factory) from the previous -USD 85.2 billion). US Q1 Core PCE Prices are expected up 2.5% from 1.3%.

Trading Perspective: The market’s risk-on stance looks to extend in Asia today with the USD/JPY elevated. Against the Euro, Pound and other Asian and EM currencies, the Greenback will remain steady. Risk currencies led by the Australian Dollar should stay on the sidelines given the firmer US Dollar. The uptick in US Bond yields also support a firmer Greenback.
US data released later today will be monitored with most expecting better results. Any disappointments will see the US Dollar retreat.

  • GBP/USD – will be in the limelight heading into today’s big Bank of England interest rate and policy announcement. Expectations are for a hawkish shift from the BOE. The question is whether they will signal raising rates ahead of the US Federal Reserve. Today, GBP/USD has immediate resistance at 1.4000 followed by 1.4030 and 1.4070. Immediate support lies at 1.3930 (overnight low 1.3923) and 1.3900. Look for consolidation within a likely 1.3900-1.4000 first up. A more hawkish bent from the BOE will see GBP/USD crack through the 1.4000 barrier to 1.4100. Anything less risks 1.3900 and lower.
  • USD/JPY – The Dollar closed on a firm note around the 111.00 level after trading to an overnight high at 111.10. Immediate resistance is at the 111.10 level followed by 111.30 and 111.80. Immediate support can be found at 110.50 and 110.20. Looking for a likely trading range of 110.70-111.20 range first up. If US data tonight show that the recovery in the US economy is picking up, we can see USD/JPY head higher. Meantime, trade the range shag on this puppy today.

(Source: Finlogix.com)

  • AUD/USD – The Australian Dollar benefitted from the market’s risk-on stance and a bounce in commodity prices. AUD/USD hit an overnight high at 0.7599 before retreating to settle at 0.7575 in late New York. AUD/USD has immediate resistance at 0.7600 followed by 0.7630. Immediate support can be found at 0.7550 followed by 0.7510. Any easing of risk appetite will see the Aussie Battler drift lower. Likely range today will be 0.7540-0.7600. Preference is to sell rallies.
  • EUR/USD – The Euro settled at 1.1925, modestly lower against the US Dollar in lacklustre trade. EUR/USD traded to 1.1970 overnight peak before pulling back. Overnight low for the shared currency was 1.19111. EUR/USD has immediate resistance at 1.1940 and 1.1980. Immediate support can be found at 1.1910 and 1.1880. Germany’s IFO Business Climate is released today expecting an improvement. This should be Euro supportive. Looking like a trading range today of 1.1900-1.1990 range today. Preference is to sell into strength.

Happy trading and top Thursday to all.


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