US, Global Treasury Bond Yields Settle; Greenback Claws Back Losses

  • Michael Moran , Senior Currency Strategist at ACY Securities

  • 13.07.2021 05:00 pm
  • trading

AUD Steady Amid Covid Count, China Slowdown; CAD Dips, BOC Next

Summary: Global bond and currency markets steadied after a cautious start amidst varying Covid responses, and into a busy events and data calendar week. The US Dollar steadied across the board while risk sentiment remained tentative. A favoured gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) edged higher to 92.20 from 92.10 yesterday. Sterling eased to 1.3880 from 1.3900 as a surge of coronavirus cases in the UK which hit levels unseen for months. British Prime Minister Boris Johnson was expected to announce a removal of Coronavirus restrictions from July 19. The Dollar rallied 0.35% against the Japanese Yen to 110.35 (110.12 yesterday) on improved risk sentiment and steady US Treasury bond yields. The benchmark US 10-year bond yield settled at 1.36% (1.36%) while 2-year rates climbed to 0.23% from 0.21%. Yesterday, the People’s Bank of China (Chinese Central Bank) announced it would cut its RRR (required reserve ratio) effective July 15 in a bid to release liquidity to support a faltering post-Covid economic recovery. Today China releases its Trade Balance ahead of a data dump of economic reports later this week. The risk sensitive Australian Dollar steadied to close modestly lower at 0.7482 from 0.7491 yesterday. Rising counts of Covid-19 infections in New South Wales, Australia’s most populous State have led to a lockdown extension. The Kiwi edged up to to 0.7000 from 0.6990 ahead of the RBNZ’s Rate Policy Meeting tomorrow. The Euro (EUR/USD) dipped to 1.1860 from 1.1877 in another lacklustre and featureless trading session. Against the Canadian Loonie, the US Dollar steadied to 1.2455 (1.2440). The Bank of Canada has its Interest Rate Policy Meeting on Thursday. The BOC was the first major central bank to taper bond purchases. Will they do it again? Asian and Emerging Market Currencies were mixed against the Greenback. The USD/CNH pair (Dollar-Offshore Chinese Yuan) dipped to close at 6.4765 from 6.4775 yesterday. Against the Thai Baht, the Greenback rose 0.5% to 32.70 (32.55) as Thailand faced continued to battle an alarming rise in both the Alpha and Delta variants of Covid-19 infections.
Wall Street stocks edged higher at the close of trade. The DOW settled at 35,017 (34,897) while the S&P rallied 0.37% to 4,386 (4,367 yesterday). Global bond yields were mostly flat after steadying yesterday. UK 10-year Gilt yield closed at 0.65% (0.65%). Japan’s 10-year JGB rate was flat at 0.02%.
Data
released yesterday saw Japanese Core Machinery Orders climb to 7.8%, beating estimates of 2.5%. China’s Money Supply in June (y/y) rose by 8.6% from 8.3% in May, beating forecasts at 8.2%.
There were no other major economic data releases.

  • AUD/USD – The Aussie initially slid to an overnight low at 0.7448 from its 0.7492 opening yesterday as lockdown restrictions were extended in New South Wales. Weaker risk sentiment also weighed on the Aussie. The Battler managed to stabilise, settling at 0.7477.
  • GBP/USD – Sterling rallied to finish at 1.3884 from an overnight low at 1.3839. The British currency wilted as the UK coronavirus cases hit levels which were unseen for months. UK Prime Minister Boris Johnson was expected to announce a removal of restrictions on July 19 which steadied the British Pound.
  • USD/JPY – The Dollar traded in a steady 109.98-110.402 range against the Japanese currency. USD/JPY initially fell to 109.98 on the overall weaker US Dollar tone yesterday before rebounding to settle at 110.35 in late New York.
  • EUR/USD – In featureless and lacklustre trade, the shared currency settled at 1.1861, modestly lower from its 1.1877 close yesterday. Overall range for the Euro was 1.1836 to 1.1880.

On the Lookout: The spotlight today shines on Asia with China reporting its Trade Balance today following the move by the People’s Bank of China to ease liquidity with its RRR rate cut. The UK also sees a data dump when European markets open.
Data releases kicked off earlier with New Zealand’s Food Inflation YOY for June which rose to 2.8% from 1.8%. Australia follows next with its HIA New Home Sales in June (m/m, previous was 15.2%). Australia’s NAB Business Confidence Index for June follows (previous was 20). China’s Balance of Trade is next (no forecasts, previous was a Surplus of USD 45.53 billion). Germany (m/m f/c 0.4% from 0.3%) and France (m/m f/c 0.2% from 0.3%) release their June Inflation rates. The US releases its June Headline and Core CPI data (Headline f/c 0.4% from 0.3%; Core f/c 0.4% from 0.7% - Finlogix).

Trading Perspective: Expect Asian markets to consolidate yesterday’s moves with the US Dollar keeping its overall bid. US Treasury bond yields have stabilised, and this is USD supportive. Today’s data releases could surprise with China’s Trade Balance. This is followed by Euro area (France and Germany) CPI reports. Finally, the US CPI numbers, which are expected to see a modest rise will be closely monitored by traders and investors. Any surprises (higher or lower) will certainly provide for some choppy moves. The week ahead sees more data releases with a China dump on Thursday (Retail Sales, Industrial Production, GDP, Fixed Asset Investment). Australia’s Jobs report is also scheduled for release on Thursday.
Unless we see a surprise in China’s Trade numbers this morning, look for the Greenback to remain supported in Asian time, until the release of US CPI later today.

  • AUD/USD – The Aussie remains under pressure due to the country’s ongoing struggle with Covid-19 cases and an overall stronger Greenback. That said, the Aussie has bounced back from its lows near the 0.7400 levels. AUD/USD opens steady trading around the 0.7485 level. Immediate resistance lies at 0.7500 followed by 0.7530. Immediate support can be found at 0.7460 (overnight low traded was 0.74482) The next support level is found at 0.7430. Look for consolidation in a likely trade today between 0.7440-0.7510. Am neutral, happy to trade the range.
  • USD/CAD – closed at 1.2455 after trading an overnight range between 1.2441 and 1.2514. The Greenback eased against the Canadian Loonie despite its firmer finish against other rivals. The Bank of Canada’s Interest rate meeting on Thursday will have a lot speculating as to what is the BOC’s next move. Economic data has improved while Canada’s vaccination take-up has been strong, and restrictions have eased. Will the CAD go Loonie again?? Immediate resistance can be found at 1.2480 followed by 1.2510. Immediate support lies at 1.2430 (overnight low 1.2440) and 1.2410. Look for a likely trade between 1.2440 and 1.2520. Prefer to buy USD dips.

(Source: Finlogix.com)
GBP/USD – Sterling finished near the upper end of its trading range against the Greenback at 1.3883. GBP/USD has immediate resistance today at 1.3910 (which was the overnight high traded).The next resistance can be found at 1.3940. Immediate support can be found at 1.3860 followed by 1.3830 (overnight low was 1.3839). Look for consolidation in a likely 1.3840-1.3910 range today. Prefer to sell into GBP strength.
EUR/USD – The Euro has been featureless since the start of the week. This may all change with the release of German and French inflation numbers this afternoon. If both numbers rise more than expected, we can see the shared currency challenge 1.1900. On the other hand, a weaker result will see 1.1800 broken with a test at 1.1780. Meantime, look for further consolidation in a likely trading range today of 1.1835-1.1885. Prefer to sell rallies.

Happy trading and Tuesday all.
 


 

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