Risk-Off Lifts Dollar, AUD, EMFX Tumble; Crude Oil Slides

GBP Slumps Post BOE Rate Hike; Wall Street Stocks Fall

Summary:

Risk appetite fell after China reported that Producer Prices plunged to -3.6% year-on-year in April from March’s -2.5%. Elsewhere, US Weekly Unemployment Claims jumped to 264,000, its highest read in 1.1/2 years.

The Australian Dollar (AUD/USD), considered by many traders as the leading risk currency, tumbled 1.18% lower to 0.6702 from 0.6777. New Zealand’s Kiwi (NZD/USD) fell 1.13% to 0.6298 (0.6367).

Sterling (GBP/USD) slid to 1.2512 from 1.2625 after the Bank of England raised interest rates by 25 basis points to 4.50%, which was widely expected. The Euro (EUR/USD) sank to 1.0915 (1.0983), a 4-week low.

The Dollar Index (USD/DXY), which measures the Greenback’s value against a basket of 6 major currencies, jumped to 101.70 from 101.10 yesterday. USD/JPY edged higher to 134.57 from 134.35.

Against the Asian and Emerging Market currencies, the US Dollar lifted amidst the risk-off stance. The USD/CNH (Dollar-Offshore Chinese Yuan) rallied 0.4% to 6.96 from 6.94. The USD Dollar soared to 33.90 Thai Baht from 33.60. USD/SGD (Dollar-Singapore Dollar) climbed to 1.3315 (1.3250).

Treasuries rose as global bond yields slumped. The benchmark US 10-year rate fell 6 basis points to 3.38%. The UK’s 10-year bond yield tumbled to 3.70% from 3.79%. German Ten-year Bund yields dropped to 2.22% (2.28%). Australia’s 10-year treasury rate was last at 3.39% (3.45%).

Other economic data released yesterday saw Japan’s Current March Account Surplus shrink to JPY 2278.1 billion against forecasts at JPY 2947.3 billion. China’s Annual CPI dip 0.1% from a previous 0.7%, and lower than expectations of 0.3%.

Chinese New Bank Loans plummeted to CNY 719 billion from CNY 3,890 billion and lower forecasts at CNY 1,400 billion. Japan’s value of Bank Loans year-on-year rose to 3.2% from 3.0%.

EUR/USD – The shared currency fell against the broadly based stronger US Dollar to 4-week lows at 1.0915 at the New York close. Yesterday, the Euro was changing hands at 1.0980. The overnight high traded was at 1.0998 while the low seen was 1.0900.GBP/USD – Following the Bank of England’s decision to hike its Official Bank Rate by 25 basis points to 4.50%, the British Pound (GBP/USD) tumbled 0.89% to 1.2512 (1.2620 yesterday). BOE Governor Bailey said that the BOE’s Monetary Policy Committee (MPC) saw headline inflation falling considerably from April onwards. The overnight low traded was at 1.2496.AUD/USD – The Aussie Battler plunged to 0.6702 from 0.6777 yesterday. In volatile trade, the overnight low recorded was at 0.6688. In volatile trade of its own, the Aussie Battler ratcheted to an overnight peak at 0.6796. The fall in China’s PPI weighed on the Aussie.USD/JPY – Against the Japanese Yen, the Dollar rose modestly to 134.57 from 134.30 yesterday. In choppy trade, the overnight low recorded was 133.74. On the topside, the Greenback traded to a high at 134.84. The Japanese currency fared better than its rivals   buoyed by risk-off market sentiment.

On the Lookout:

Friday’s economic calendar picks up, starting off with New Zealand’s Q2 RBNZ Inflation Expectations (no f/c, previous was 3.3% - FX Street).

New Zealand’s Food Inflation in April (y/y) rose to 12.5% from 12.1%, beating estimates at 11.4% - ACY Finlogix.

New Zealand’s BusinessNZ Manufacturing Index rose to 49.1 from the previous 48.1.

The UK starts off European data with its March Goods Trade Balance (f/c -GBP17.5 billion from a previous -GBP 17.534 billion – ACY Finlogix), UK March Industrial Production (m/m f/c 0% from -0.2%; y/y f/c -2.9% from -3.1% - ACY Finlogix), UK March Manufacturing Production (m/m f/c -0.1% from 0%; y/y f/c -2.5% from -2.4% - ACY Finlogix), UK Preliminary Q1 GDP (q/q f/c 0.1% from 0.1%; y/y f/c 0.2% from 0.6% - FX Street).

France releases its April Inflation Rate (m/m f/c 0.6% from 0.9%; y/y f/c 5.9% from 5.7% - ACY Finlogix).

The US rounds up today’s economic reports with its US April Export Prices (m/m f/c 0.3% from -0.6%, y/y f/c -2.4% from -4.8% - ACY Finlogix), US April Import Prices (m/m f/c 0.3% from -0.6%; y/y f/c -2.4% from -4.8% - ACY Finlogix) and finally US Preliminary May University of Michigan Consumer Sentiment (f/c 63.0 from 63.5 – ACY Finlogix).

Trading Perspective:

Risk-off weighed on currencies versus the US Dollar as fears grew on tepid global economic data.

The larger than expected drop in China’s Producer Prices combined with US bank concerns added to the market’s anxiety.

It’s Friday today and liquidity will be at a premium so we can expect further volatility in FX.

The trend of a stronger Greenback will continue in Asia, but as it is Friday, expect some pullbacks.

Traders will also focus on today’s economic data releases.

Fed FOMC members Bowman and Jefferson as well as the BOE’s MPC member Pill are due to speak at various engagements.

EUR/USD – The Euro succumbed to the overall stronger US Dollar, settling at 1.0915 against yesterday’s 1.0980. In volatile trade the overnight low recorded was at 1.0900. Look for immediate support at 1.0900. The next support level lies at 1.0870 followed by 1.0840. On the topside, look for immediate resistance at 1.0950, 1.0980 and 1.1010. Expect another choppy trade in the shared currency, likely between 1.0885-1.1005. While the Euro feels heavy, am wary of shorting it near the 1.0900 area. Sell Euro strength.AUD/USD – The Aussie Battler plummeted to an overnight low at 0.6689 before steadying to settle at 0.6702 in late New York. For today, look for immediate support at the 0.6685 level to hold. The next support level is found at 0.6655. Immediate resistance can be found at 0.6735, 0.6765 and 0.6795. Look for another choppy session in the Aussie today, likely range: 0.6680-0.6880. Prefer to buy AUD/USD on dips today.USD/JPY – The Dollar was subdued against the haven sought Yen, settling at 134.57 (134.30 yesterday). On the day look for immediate resistance at 134.85 (overnight high traded was 134.84). The next resistance level lies at 135.05 followed by 135.45. Look for another volatile session in this currency pair, likely range today between 134.00 and 135.00. Trade the range.GBP/USD – The British Pound slid against the Greenback to close at 1.2512 against yesterday’s 1.2620. The Bank of England raised interest rates by 25 basis points, which was widely expected. The BOE’s Monetary Policy Committee dovish outlook for inflation weighed on Sterling as did broad based US Dollar strength. Immediate support today lies at 1.2495 (overnight low traded was 1.2496). The next support level is found at 1.2465 and 1.2435. On the topside look for immediate resistance at 1.2550, 1.2580 and 1.2620 to cap. Likely range today: 1.2500-1.2620. Trade the range. At current levels, GBP/USD is more a buy on dips.

Happy Friday, have a good trading day ahead. Top weekend to all.

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