The dollar is down after Trump’s comments and talk of raising interest rates on the Australian dollar
Donald Trump struck further damage to the US Dollar, suggesting the Fed should refrain from raising rates. Atlanta Fed Head Bostic said he sees 3 rate hikes this year. The yield on the benchmark US 10-year bond dropped to 2.82%, a 6-week low. The Dollar Index (USD/DXY) extended its decline to close 0.37% lower at 95.781 (96.132 yesterday). Emerging Market currencies were mixed. Stocks and commodities rallied. Gold finished 0.5% higher.
Outlook: Yesterday was all about comments and market positioning given no major data releases. First up, none other than the Don himself, President Trump. The US leader also accused China and Europe of manipulations their currencies according to Reuters The RBA releases the minutes of its most recent policy meeting (early August). Expect the minutes to be more upbeat, given the recent more positive Australian economic data.
Trading View: The US 10-year bond yield dropped a whopping 4 basis points to 2.82%. Other global yields were either unchanged (Germany, Switzerland) or 1 basis point down (UK, Japan, Canada, NZ). This low has not been seen since May 30, 2018. Bloomberg reported that net short positions in the US 10-year treasuries are at the highest on record, according to the latest CFTC report. A short-squeeze will increase the demand for the bonds, keeping yields low. Without yield support, the Dollar cannot rally further. Today’s economic calendar and events are light which should contribute to a slow day in Asia.
RBA Governor Philip Lowe, spoke at an ASIC (Australian Securities and Investments Commission) breakfast function, said that he expects the next move in interest rates will be up and not down. Given that the speculative community is short Aussie bets, expect the currency to climb further. Here is an excerpt from Rowe’s speech (from the RBA official page).
“It is nearly eight years since the previous increase in interest rates by the RBA. This means that many borrowers have never experienced a rise in official interest rates. They have mostly experienced lower rates. At some point, this will change. Over recent times the Australian economy has been improving. This is good news. If we continue on this current improving track, as we expect we will, it is likely that the next move in official interest rates will be up, not down.”
USD/DXY – The Dollar Index closed 0.37% lower at 95.781 (96.132 yesterday). Overnight low traded for the Dollar Index was 95.769. We haven’t closed far from that. A break through the immediate resistance currently at 95.70 will see 95.50. Topside, immediate resistance can be found at 96.00, followed by 96.20. The overnight high traded was 96.402. Look for a quiet range today between 95.65-96.05. Prefer to sell rallies, the reversal is still in place.
AUD/USD – The Aussie rallied to finish 0.44% higher at 0.7340 (0.7315 yesterday). Less than one week ago, the Australian currency was looking down and out near 0.72 cents. In true Battler fashion, we are up almost 1.5 cents. The China-US trade dispute was at its height then and EM currencies started their big decline led by the TRY (Turkish Lira). While this has changed, for now, it's not yet over with. That may keep a headwind on further significant Aussie gains. However, the speculative market is short, and the yield gap between Australian and US interest rates is not about to narrow any further, given Lowe’s comments. Copper extended its rally (up 1.4%) and lifting base metals. Immediate resistance lies at 0.7350 (overnight high 0.73436). The next resistance level lies at 0.7380. Immediate support can be found at 0.7310 and then 0.7280. Look to buy dips with today’s likely range 0.7310-0.7380.
EUR/USD – extended its rally against the US Dollar and looks headed to 1.1510 first up. The Euro closed at 1.1482, up by 0.43%. Overnight high traded was 1.14849. Immediate resistance can be found at 1.1510, followed by 1.1550. Immediate support can be found at 1.1450 and then 1.1410. The yield on Germany’s 10-year Bund finished flat at 0.30. Euro area Manufacturing and Services PMI data as well as the ECB Monetary Policy Accounts Meeting minutes. Today’s likely range is 1.1450-1.1510. Look to trade this range shag.
USD/JPY – retreated to finish at 110.07 in New York, down 0.38% (110.55 yesterday). The drop in the US 10-year yield will keep the Dollar’s topside limited. Immediate resistance for today can be found at 110.30 and then 110.60. Immediate support lies at 110.00 (overnight low 110.019) followed by 109.80. Look to sell rallies with a likely range today of 109.85-110.55.
GBP/USD – Sterling rallied once again despite Brexit worries. The overall weaker US Dollar has kept the Pound from falling further. Sterling closed 0.45% higher at 1.2797, (1.2753 yesterday) just under immediate resistance at 1.2800. Overnight high traded was 1.27985. The next resistance level lies at 1.2820. Immediate support can be found at 1.2760 and then 1.2730. Concerns remain that the upcoming talks between the UK and the EU will result in a trade deal before Britain exits the bloc. That said, net speculative GBP shorts are at their largest since May 2017. Look for a likely range today of 1.2760-1.2810. Prefer to buy dips.
Events and economic data releases today: RBA Monetary Policy Meeting Minutes; UK Public Sector Net Borrowing.
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