• Michael Moran , Senior Currency Strategist at ACY Securities


• 25.05.2021 04:45 am
trading

Inflation Fears Ebb, Risk-On, Stocks, Aussie Rally

Summary: The yield on the benchmark US 10-year Bond fell to 1.60% from 1.62%, a 2-week low. The Dollar Index (USD/DXY), a favoured measure of value of the USD against a basket of 6 foreign currencies slipped to close at 89.82 (90.00), near 4-month lows. A weaker than expected US Chicago Manufacturing Index print, at 0.24 from a previous 1.71 weighed on the Greenback. Fed officials are confident they have tools to deal with any breakout bouts of inflation. The market’s improved risk appetite boosted the Aussie (AUD/USD) and Kiwi (NZD/USD). Ahead of tomorrow’s RBNZ Monetary Policy Meeting and Rate announcement, the Kiwi soared 0.80% to 0.7220 from 0.7170 yesterday. New Zealand’s Q1 Retail Sales were upbeat. The Australian Dollar rallied to an overnight high at 0.7758 (0.7727), settling at 0.7754 at the New York close. Bank holidays in Europe saw modest gains for the Euro and British Pound. Sterling closed at 1.4157 from 1.4147, while the Euro was last at 1.2215 (1.2180), a gain of 0.3%. USD/JPY eased to 108.75 from 108.95 as Japan kicked off a mass vaccination plan to battle rising Covid cases, just weeks ahead of the scheduled Tokyo Olympic Games. The Greenback slid against the Asian and Emerging Market currencies. USD/CNH (US Dollar-Offshore Chinese Yuan) fell 0.42% to 6.4090 from 6.4370 while the USD/SGD pair (US Dollar-Singapore Dollar) ended 0.35% lower to 1.3280 (1.3320). Other global bond yields eased. Germany’s 10-year Bund yielded -0.14% (-0.13% yesterday). The Australian 10-year Treasury rate fell to 1.69% from 1.73% yesterday. Japanese 10-year JGB yields were unchanged at 0.07%. The DOW settled at 34,430 (34,253 yesterday), up 0.52%. The US S&P 500 gained 0.97% to 4,200 (4,160 yesterday).
There was one primary economic data released yesterday. New Zealand’s Q1 Retail Sales beat expectations, rising 2.5% (vs -1.8%), up from the previous quarter’s -2.7%. NZ Core Sales rose 3.2% (vs f/c -1.0%).

• NZD/USD – The Kiwi, also known as the Flightless Bird, sprouted wings, soaring 0.8% against the US Dollar. NZD/USD hit an overnight high at 0.7222 before settling at 0.7215. The Kiwi finished as best performing major. Tomorrow the RBNZ is expected to maintain a cautious stance, following the lead from other global central banks.
• AUD/USD – The Aussie lifted on the back of the Kiwi and the upbeat market sentiment which saw equities rally. AUD/USD climbed to 0.7758, its overnight peak before easing to settle at 0.7754, up 0.47%. The Battler dipped to an overnight low at 0.77059.
• EUR/USD – The shared currency grinded higher in subdued trade to 1.2215 from yesterday’s opening of 1.2180. EUR/USD traded in a familiar range between 1.2168 and 1.2230, settling in the higher end of the range.
• USD/CNH – Against China’s Offshore Yuan, the Dollar slid 0.42% to close near its overnight lows at 6.4090 (overnight low 6.40809). In early Asia, USD/CNH is modestly higher at 6.4120. The 6.4000 is a psychological and technical support level which has held since mid-2018. Be interesting to watch this puppy today.

(Source: Finlogix.com)

On the Lookout: Today, economic data releases pick up as European and Canadian markets return. Australia kicks off with its April Goods Trade Balance (11.30 am Sydney). Japan’s BOJ Core CPI report follows (f/c at -0.1% from a previous 0.0%). Germany releases its Final GDP (Q1), f/c at -1.7% from the previous -1.7%, as well as German IFO Business Climate Index (f/c 98.2 from 96.8). UK follows with its Public Sector Net Borrowing and CBI Realised Sales (f/c at 24 vs previous 20). The US sees its May House Price Index (f/c 1.1% vs 0.9%), S&P/Case Shiller Composite-20 HPI (Annual – Single Family Home Sales – f/c 12.6% from previous 11.9%), CB Consumer Confidence (f/c 119 from previous 121.7). Finally, US New Home Sales (May) (f/c 950K from 1021K) and Richmond Manufacturing Index (f/c 19 from previous 17) round up the day’s reports.

Trading Perspective: Lower US bond yields were a big weight on the Dollar and if extended will continue to plague the US currency. That said, other bond yields were also lower, but most were marginal. Markets expect the yield differentials to widen in favour of the currencies against the Greenback. This remains to be seen. While the USD/DXY feels heavy as it hovers near 4-month lows, it is premature to call for a further slide. Data releases tonight and later this week will be closely watched by traders and investors. Thursday is the big data day which sees US Preliminary Q1 GDP as well as Headline and Core Durable Goods Orders.
Meantime we can expect consolidation at these lower levels for the Dollar against its Rivals. Watch the USD against the Asians and EM currencies. USD/CNH is near June 2018 lows and Chinese authorities will be vigilant for any sustained strength beyond these levels for the Yuan.

• AUD/USD – The Aussie finished near the upper end of its well-worn range, above 0.7750 (0.7753). Immediate resistance lies at 0.7780 followed by 0.7810. Support can be found at 0.7720 and 0.7700 (overnight low 0.77059). Australia’s Employment report, due tomorrow will be key for the Aussie Battler. Meantime, look for further consolidation in a likely 0.7720-0.7790 range today.
• NZD/USD – The Kiwi took flight overnight boosted by robust New Zealand Retail Sales ahead of the RBNZ Monetary policy meeting on interest rates tomorrow. An increase in risk appetite also supported the Bird. NZD/US traded to an overnight high at 0.7222, settling in early Sydney trade at 0.7216. Immediate resistance lies at 0.7230 followed by 0.7260 and 0.7300. Immediate support can be found at 0.7200, 0.7170 and 0.7150 (overnight low 0.7155). Expect consolidation today in a likely 0.7170-0.7240 range. Am not getting caught up with bullish sentiment on this currency pair near the top end of its recent range.
• EUR/USD – In subdued trade, the Euro grinded higher against the Greenback to an overnight peak at 1.22228 before easing to settle at its current 1.2213. The shared currency has immediate resistance at 1.2240 followed by 1.2270 today. Support lies at 1.2180 and 1.2160. Germany’s Ifo Business Climate Index is the major data for the Euro today (f/c 98.2 from 96.8). Speculative long Euro bets remain overstretched (we will take a long at speculative positioning in the currencies tomorrow). Look for a likely range today between 1.2180-1.2240. Prefer to sell rallies.
• USD/CNH – This currency pair bears watching because USD/CNH is currently sitting just above late June 2018 lows, at 6.4080. USD/CNH closed at 6.4080 after trading to an overnight low at 6.40809. This morning, USD/CNH trades at 6.4120 in Asia. Immediate support for the Greenback lies at 6.4000, and a clean break of this level could see 6.3800 (June 16, 2018 low). Immediate resistance can be found at 6.4300 followed by 6.4500. Look out for any comments from Chinese monetary officials should the USD/CNH attempt to break through 6.39/6.400. Could be an interesting one for Asian markets today!

Happy trading and Tuesday all.