• Michael Moran , Senior Currency Strategist at ACY Securities


• 12.07.2021 08:15 am
trading

Bond Yields Climb; Worries Grow on Covid-19 Delta Variant Spread

Summary: The Dollar eased against its major rivals but rose versus the Asian and Emerging Market currencies. As the week ended, risk appetite returned despite ongoing concerns on the spreading Delta variant and its effects on the strength of the global economic recovery. After dropping to its lowest level since February, the benchmark US 10-year Treasury bond yield rebounded 7 basis points to settle at 1.36% (1.29% Friday). Last week, the global spread of the coronavirus Delta variant outweighed Fed taper concerns and pushed treasury bond rates to 2021 lows. Friday’s technical rebound in US and global bond yields enabled equities to rally while the Greenback was mostly lower. A favoured gauge of the US Dollar’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) eased 0.34% to 92.10 from 92.37. The Euro settled with modest gains, closing at 1.1877 from 1.1845 Friday. Against the traditional haven currency, the Swiss Franc, the Greenback eased 0.3% to 0.9139 (0.9150). The USD/CAD slumped 0.75% to 1.2445 (1.2535 Friday) enabling the Canadian Loonie to finish as best performing major currency. The Canadian economy added a total of 230,700 Jobs in June, beating expectations of +195,000. Elsewhere, Sydney extended its lockdown for a third week as Australia’s largest city struggles to contain a rising spread of the delta variant amidst a slow vaccine take-up. After a battering early Friday which saw the Aussie slump to 0.7410, overnight and December 2020 lows, the Battler rallied 0.43% to 0.7491 in late New York. The Kiwi (NZD/USD) rallied to close at 0.7002 from 0.6945. Sterling bounced to finish at 1.3902 after initially falling to 1.3756 overnight. The British currency opened at 1.3883 on Friday. The Dollar ended mixed against the Asian and Emerging Market currencies. Against the Thai Baht, the Greenback rose to 32.55 from 32.42 as Thailand faced rising cases of Covid-19 infections. USD/CNH edged lower to finish at 6.4785 from 6.4930.
Wall Street stocks rebounded at the close. The DOW added 1.4% to 34,897 (34,397) while the S&P 500 was up 1.14% to 4,370 from 4,320.
Other global bond yields settled higher on Friday. Germany’s 10-year Bund yield was up 2 basis points to -0.29%. UK 10-year Gilt yields climbed 4 basis points to 0.65%. Japanese 10-year JGB rates rose 1 basis point to 0.02%.
Data released Friday saw China’s June CPI y/y ease to 1.1% from 1.3%, lower than estimates of 1.3%. China’s June PPI y/y matched forecasts at 8.8%. The UK’s May Trade Deficit improved to
 -GBP 8.5 billion, beating forecasts of -GBP 11.1 billion. UK May GDP missed expectations at 0.8% against 1.5%. Italy’s Industrial Production in May slipped to -1.5%, underwhelming expectations of 0.3%. Canada’s June Unemployment rate eased to 7.8% from 8.2% in May but missed forecasts at 7.7%. US May Final Wholesale Inventories in June were up at 1.3% from 1.1% in May. Chinese June Vehicle Sales fell to -12.4% from -3.1%. Chinese New Yuan Loans rose to CNY 2.12 billion from CNY 1.50 billion, beating forecasts at 1.80 billion.

• EUR/USD – traded in a choppy range, initially falling to an overnight low at 1.1784 before rebounding to its New York close at 1.1845. The overnight high traded was 1.1868.
• USD/JPY – The US Dollar initially climbed to an overnight peak at 110.65 from its 110.55 opening on Friday before sliding to finish at 109.77. The overnight low traded was at 109.53.
• AUD/USD – The Aussie slumped to its overnight and fresh December 2020 low at 0.7416 from its opening on Friday at 0.7481. The Aussie Battler then recovered to its New York close at 0.7428. Overnight high traded was 0.7484.
• GBP/USD – Sterling started on the back foot and slid to its overnight low at 1.3756 from its 1.3784 opening on Friday. The overall lower US Dollar enabled the British Pound to rally to 1.3902 at the New York close. Overnight high traded was 1.3907.
• USD/THB – The Greenback soared to 32.73 overnight and mid-April peak as Thailand faced rising Covid-19 infections of the Delta variant. The Greenback opened at 32.47 on Friday. USD/THB then eased to settle at 32.55. Overnight range traded was 32.49 to 32.73.

On the Lookout: Today sees a modest economic data calendar ahead. Which kick off today with New Zealand’s June Retail Card Spending (m/m last at 1.7%, y/y last at 18.1%). Japan releases its June Core Machinery Orders (y/y previous was 140.7%), Japanese June PPI follows (m/m last was 0.7%, y/y last was 6.5%). Australia follows with its May Final Building Permits (f/c -7.1% from -5.7%). US TIPS Long Term Treasury Purchases and June Consumer Expectations (previous was 4%) round up the day’s reports.
Watch the US treasury bond yields. They may be the key in the days ahead. If we see further weakness in the benchmark US 10-year bond rate, the Greenback will lose ground.

Trading Perspective: The see-saw between the Fed taper concerns and the global spread of the Covid-19 delta variant will continue to dominate trade. Rising global Covid-19 infections are causing concerns on the effects of economic recovery. Sydney’s extended lockdown will cost the Australian economy and weigh on risk and the Australian Dollar as well as Asian and Emerging Market currencies. The US Dollar should gain back some of its strength as traders look to its haven status.

• AUD/USD – The Aussie Battler bounced back to 0.7492 at the close in New York. This morning the Aussie has drifted a touch lower to 0.7478. Immediate resistance lies at 0.7500 followed by 0.7530. Immediate support can be found at 0.7450 followed by 0.7410. Look for the Aussie to drift lower in a likely range today between 0.7435 and 0.7495. Prefer to sell rallies.
• USD/JPY – the souring of risk sentiment should keep the Dollar’s topside against the Yen limited. USD/JPY opens at 110.16 in early Sydney. There is immediate resistance at 110.30 (overnight high was 110.26) followed by 110.60. Immediate support can be found at 109.80 followed by 109.50. Expect the USD/JPY to trade in a likely 109.75-110.35 range today, the preference is to sell into USD strength.
• EUR/USD – The Euro should gain from any US Dollar weakness. EUR/USD closed at 1.1875 in New York on Friday. This morning, EUR/USD opens at 1.1875 exactly where it closed. The Euro has immediate resistance at 1.1900 followed by 1.1930. Immediate support can be found at 1.1830 and 1.1800. Look for the Euro to trade in a likely 1.1820-1.1900 range today. Just trade the range shag on this one.
• GBP/USD – Sterling opens at 1.3902 this morning, which is exactly where it finished on Friday. A softer US Dollar has enabled the Pound to rebound from its overnight low at 1.3756. The UK is planning to restart its economy a week from today which should be supportive of the British currency. GBP/USD has immediate resistance at 1.3910 (overnight high traded was 1.3907). Immediate support can be found at 1.3860 followed by 1.3830. Look for a likely trading range today of 1.3830-1.3930. Look to trade the range on this puppy today.

Have a top Monday start and a good week ahead all.