Fed Ready to Act on Inflation Flare-Ups, USD Mostly Up

  • Michael Moran , Senior Currency Strategist at ACY Securities

  • 08.07.2021 07:00 am
  • trading

AUD Extends Fall, EUR Dips, GBP Flat, Bond Yields Ease

Summary: Minutes from the Fed’s June meeting revealed that a majority of officials saw US inflation risks “tilted to the upside.” Some FOMC members said that they expect conditions to reduce the pace of asset purchases to be met earlier than they had anticipated. The Dollar edged higher against its rivals. US stocks and bonds posted gains, and treasury yields fell. Weaker-than-expected German Industrial Production data weighed on the Euro, which closed 0.15% lower to 1.1805 (1.1822). The Australian Dollar extended its post-RBA fall to a 0.7482 close from 0.7495. Sterling finished little changed at 1.3805 (1.3800). Lower Oil prices lifted the USD/CAD pair to an overnight and April high at 1.2519 (1.2462 yesterday) before settling at 1.2485. The Dollar Index (USD/DXY), a favoured gauge of the Greenback’s value against a basket of 6 major currencies finished 0.14% higher to 92.67 (92.57 yesterday). Against the Asian and Emerging Market currencies, the Dollar was mixed. USD/CNH eased to 6.4745 from 6.4770 while USD/THB edged up to 32.35 (32.27 yesterday). The Dollar dipped to close at 110.57 Japanese Yen from 110.65 yesterday. Global treasury yields finished lower. The benchmark US 10-year treasury yield fell 3 basis points to 1.32%. Germany’s 10-year Bund rate slipped to -0.30% from -0.27%. Australia’s 10-year bond yield dropped to 1.38% from 1.46%.
Wall Street stocks rose. The DOW gained 0.55% to 34,722 (34,547). The S&P 500 settled at 4,362 (4,345 yesterday).
Data released yesterday saw Japanese Leading Indicators in May print at 102.6% against forecasts at 102.8%. Germany’s May Industrial Production (m/m) slumped to -0.3%, missing expectations of +0.5% and a previous +1.2%. Canada’s IVEY PMI rose to 71.9 in June from a previous 64.7. US JOLTS Job Openings underwhelmed, at 9.21 million, missing expectations of 9.31 million.

  • AUD/USD – slip-sliding away, the Battler was under constant pressure in a down move that begun following the release of the RBA’s monetary policy meeting minutes. A generally stronger US Dollar weighed further on the Aussie. AUD/USD opened at 0.7495 yesterday, rallied to 0.7534 high before sliding to its 0.7482 close.
  • EUR/USD – The shared currency eased to close at 1.1805 from 1.1823 yesterday. The Euro once again tested and held the 1.1782 overnight low level before rallying to close just above 1.1800. Overnight high traded was 1.1836.
  • USD/CAD – The Greenback extended its gains versus the Canadian Loonie despite better- than-expected Canadian IVEY PMI data. Oil prices slid anew which weighed on the CAD. The Loonie faces a test tomorrow with the release of Canadian Employment data.
  • GBP/USD – Sterling finished little changed at 1.3805 (1.3800) yesterday in lacklustre trade. Overnight the British Pound slumped to a 1.3754 low before rallying to settle just above the 1.3800 handle. Rising coronavirus cases in the UK (32,500 reported overnight, the biggest one-day increase since January) weighed on the British currency.

On the Lookout: The Fed signalled no surprises to the markets which elevated US stocks, bonds, and the Dollar. Markets will continue to focus on US data to gauge any acceleration of the economic recovery. Today sees the release of US Weekly Unemployment Claims which are expected to improve to 350,000 from a previous 364,000. Other data released today are UK RICS House Price Diffusion Index which just printed at 80%, a touch lower than the previous 83%. Sterling is little changed. RBA Governor Philip Lowe is scheduled to speak to the Economic Society of Australia at 12.30 pm Sydney time. Japan releases its Economic Watchers Sentiment (f/c at 41.9 from 38.3). Swiss Unemployment Rate follows (f/c at 2.9% from 3.0%). Germany follows with its Trade Balance for May which is a Surplus (ACY Finlogix f/c EUR 15.4 billion from previous +EUR 15.9 billion). US Weekly Jobless Claims follow (see above). The ECB releases its monetary meeting policy accounts (minutes of its latest monetary policy meeting). US Consumer Credit Change for May rounds up the day’s reports (f/c USD 18.4 billion from USD 18.61 billion – ACY Finlogix).

Trading Perspective: While the US Dollar was mostly higher against its Rivals, the rise in US treasuries saw bond yields fall. The benchmark US 10-year bond yield fell to 1.32% (1.35% yesterday). While other global bond yields were also lower, the US 10-year rate needs to climb in order for the Greenback to sustain its strength, and advantage over other currencies. Without yield support, the USD will struggle to gain versus its rivals.
Other factors coming into play are the rise in global cases of the Delta variant of Covid-19. These spikes will pull back any economic recoveries, including that of the US. Atlanta Fed President Raphael Bostic said that rising Coronavirus infections in some parts of the country were troubling.

  • AUD/USD – The Aussie Battler, which came under heavy selling pressure following the RBA’s meeting and statement, extended its losses to close at 0.7480. Overnight low traded was 0.74624 where immediate support lies (0.7460). The next support level can be found at 0.7430 followed by 0.7400. Immediate resistance lies at 0.7500 followed by 0.7530 and 0.7560. While the Battler remains heavy, it doesn’t make sense to get bearish at these levels. Look to trade a likely range between 0.7460-0.7530. Prefer to buy dips today.

(Source: Finlogix.com)

  • EUR/USD – The Euro held up better against the Greenback than the other currencies more due to indifference rather than anything else. Trading in the shared currency has been lacklustre. The weaker-than-forecast German Industrial Production report should have seen the Euro lower. EUR/USD has immediate support at 1.1780 (overnight low 1.1782) followed by 1.1750. Immediate resistance can be found at 1.1840 (overnight high 1.1836) followed by 1.1870. Look to trade a likely 1.1775-1.1855 range today. Not getting bearish down here just yet.
  • USD/CAD – The Canadian Loonie stayed weak against the US Dollar despite a better-than-expected IVEY PMI report. USD/CAD closed at 1.2485 (1.2462 yesterday) after soaring to an overnight high at 1.2519. Weaker Oil prices weighed on the CAD. Canada releases its June Employment report tomorrow where a strong result is expected following May’s weak result. USD/CAD has immediate resistance at 1.2520 followed by 1.2550. Immediate support can be found at 1.2450 followed by 1.2420 (overnight low 1.2423). Look to trade in a likely 1.2450-1.2510 range today. Prefer to sell USD rallies.
    GBP/USD – The British currency finished little changed at 1.3805 (1.3800 yesterday). Overnight high traded was 1.3842. Immediate resistance can be found at 1.3840 followed by 1.3870. Immediate support lies at 1.3780 and 1.3750 (overnight low 1.3754). Tomorrow the UK releases its Industrial and Manufacturing Production and Trade data. Look for a likely trading range of 1.3770-1.3870 in the Pound today. The downside in the British currency should be limited from its current levels.

Happy trading and a top Thursday to all. 

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