Yields Spike to Multi-Year Highs, Fed Not Done Raising Rates

DXY Soars to 2-Month Peak, AUD Plummets on China Woes

Summary:

The latest Fed FOMC meeting minutes revealed that some policy makers remain concerned about inflation. The benchmark US 10-year bond yield spiked to 4.33%, before settling at 4.30% (4.21%). The Dollar Index (DXY) jumped to close at 103.45, a 2-month peak (103.20 yesterday).

In Asia, China’s state banks were seen selling the US Dollar against the Offshore Chinese Yuan (USD/CNH) to stem its fall. The Chinese currency has plunged 6% against the Greenback this year. The USD/CNH pair settled at 7.2980 (after trading to 7.3280, fresh 2023 highs).

 (Source: Finlogix.com)

The Australian Dollar (AUD/USD) which traders closely associate with China, and sometimes use as a proxy, plummeted to 0.6364 (0.6455) overnight low before rallying to settle at 0.6400. Australia’s July Unemployment Rate edged up to 3.7% from 3.5%, and higher than estimates of 3.6%.

Risk aversion and higher bond yields weighed on stocks. The DOW tumbled 0.97% to 34,447 (34,955) while the S&P 500 closed at 4,365 (4,435). Other global equities fell.

The USD/JPY pair eased to 145.85 after soaring to an overnight and November 2022 peak at 146.56. Risk aversion, profit-taking and intervention fears pulled the Dollar lower against the Yen.

Sterling (GBP/USD) held its ground, climbing against the Greenback and other currencies, closing at 1.2745 (1.2725). The UK 10-year treasury yield ratcheted higher to 4.74% (4.58%), the highest among the major currency rates.

The Euro (EUR/USD) slid to 1.0868 from 1.0905 on broad-based US Dollar strength. Germany’s automotive sector plummeted 3.5% in June, pulling industrial production 1.5% lower.

The Greenback was mostly higher against the Asian-EMFX currencies. The USD/THB pair (US Dollar-Thai Baht) rallied to 35.50 against yesterday’s 35.25. USD/SGD rose to 1.3575 from 1.3565.

Economic data released yesterday saw New Zealand’s Q2 PPI Output unchanged at 0.2%, but lower than estimates of 0.4%. Japan’s Core Machinery Orders rose to 2.7% from -7.6%, but lower than estimates at 3.6%. Australia’s July Employment change fell to -14,600 from May’s 31,600.

The Eurozone’s Trade Balance improved to +EUR 23 billion from -EUR 0.3 billion previously and beating expectations at +EUR 18.3 billion. US Weekly Jobless Claims dipped to 239,000 from 250,000. The US Philly Fed Manufacturing Index climbed to 12 from -13.5, beating forecasts at -10.

USD/JPY – The Greenback eased against the Japanese Yen to 145.85 New York close. Overnight, the USD/JPY pair traded to a high at 146.56 before sliding to its finish. Selling from Japanese exporters and profit-taking pushed the US Dollar to an overnight low at 145.53.AUD/USD – The Aussie Dollar plummeted against its US counterpart to an overnight and November 2022 low at 0.6364 before steadying to finish at 0.6400. In volatile trade, the Aussie Battler hit an overnight high at 0.6451 before tumbling lower.GBP/USD – Sterling was the only currency that gained versus the Greenback, supported by higher UK treasury bond yields. The GBP/USD pair closed at 1.2745 (1.2725) after trading to 1.2702, an overnight low. Higher wage growth in the UK supported the British currency.EUR/USD – The shared currency edged lower against the overall stronger Greenback to 1.0868 from 1.0905. The Euro rallied to an overnight high at 1.0919 before easing. The overnight low recorded was 1.0856.On the Lookout:

Today’s economic calendar is light. Japan kicks off with its National Core CPI report.

Headline CPI (y/y) is forecast at 2.5% from 3.3% while the forecasts for Core CPI (y/y) is 3.1% from 3.3% previously – ACY Finlogix.

The UK follows with its June GDP (m/m f/c 0.2% from -0.1% - ACY Finlogix), UK June Industrial Production (m/m f/c 0.1% from -0.6% - ACY Finlogix), UK June Manufacturing Production (m/m f/c 0.2% from -0.2% - ACY Finlogix), UK GDP Growth Rate (q/q f/c 0% from 0.1%; y/y f/c 0.2% from 0.2% - ACY Finlogix).

France follows with its July Inflation Rate (q/q f/c 0% from 0.2%; y/y f/c 0.2% from 0.2% - ACY Finlogix).

Italy releases its June Trade Balance (+EUR 6.489 billion from +EUR 4.711 billion).

China is expected to release its New Loans for July (f/c CNY 800 billion from CNY 3050 billion – ACY Finlogix).

Finally, the US releases its PPI report for July. US Headline PPI (m/m f/c 0.2% from 0.1%; y/y f/c 0.7% from 0.1% - ACY Finlogix), US July Core PPI (m/m f/c 0.2% from 0.1%; y/y f/c 2.3% from 2.4% - ACY Finlogix).

The US University of Michigan Preliminary August Consumer Sentiment rounds up today’s data (f/c 71 from 71.6 – ACY Finlogix).

Trading Perspective:

Every yield continued to tell a story with the US bond rates soaring.

The benchmark US 10-year rate hit a high at 4.33%, boosting the Greenback.

Asian traders will be alert, looking for any central bank activity from either the Chinese and/or Japanese authorities.

Liquidity will be at a premium today (Friday). Volatility will stay elevated.

These are ideal trading markets, look to the established ranges and don’t keep any strong opinions.

Overall, the US currency will remain robust given its yield advantage and support.

AUD/USD – Look for the Aussie to remain heavy but be prepared to trade the currency. Immediate support today lies at 0.6370 followed by 0.6340. On the topside, immediate resistance is found at 0.6450 followed by 0.6500 and 0.6550. Despite the heavy feel of the Australian Dollar, one wouldn’t to get caught short under 64 cents just yet. Look to trade a likely range today of 0.6350-0.6450. Prefer to buy dips.USD/JPY – Against the Yen, the Dollar dipped to 145.85 from 146.65 yesterday. Fears of intervention from the Japanese Ministry of Finance and BOJ kept a lid on the Greenback. Look for immediate resistance at 146.10, 146.40 and 146.70 to cap any strong rallies. On the downside, immediate support is found at 145.50, 145.20 and 144.80. Expect more choppy trade in this currency pair, likely between 145.30-146.80. Trade the range.GBP/USD – The British Pound stayed supported, finishing at 1.2745 against yesterday’s 1.2725. On the day, look for immediate resistance at 1.2775 and 1.2805. Immediate support can be found at 1.2725, 1.2705 and 1.2675. Look for Sterling to trade a likely range today of 1.2685-1.2785 today. The preference is to sell rallies.EUR/USD – The Euro settled lower against the overall stronger US Dollar to 1.0868 from 1.0905 yesterday. On the day, look for immediate support at 1.0850 (overnight low traded was 1.0856). The next support level is found at 1.0820. Immediate resistance on the day is found at 1.0900, 1.0930 and 1.0960. Look for the EUR/USD pair to trade in a likely range today of 1.0850-1.0950. Trade the range, nice and wide.

Happy Friday and trading all. A top weekend too.

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