Aussie Tumbles, US Yields Rise; Risk-Off Lifts the Dollar

USD/CNH Soars; Stocks Slide, Debt Ceiling Talks Linger

Summary:

Investor risk aversion rose as ongoing US debt ceiling negotiations lingered on without an agreement. Wall Street stocks slid while the US Dollar rallied. Weaker-than-expected Chinese economic data weighed on sentiment and boosted the Greenback.

US treasury bond yields rose. The benchmark 10-year US bond yield climbed 4 basis points to 3.53%. The two-year US treasury yield soared 8 basis points to 4.08%, its highest level this month.

Chinese economic data disappointed. Industrial Production in April plummeted to 5.6%, way below expectations of 10.9%. China’s Retail Sales fell to 18.4%, against forecasts at 22.0%.

The Australian Dollar (AUD/USD), FX risk barometer, tumbled 0.7% to 0.6655 from 0.6700 yesterday. Minutes from its latest meeting revealed that the RBA left the door open for further rate hikes, but it would depend on how the economy and inflation evolve.

New Zealand’s Kiwi (NZD/USD) dipped to 0.6230 from 0.6250, weighed by the weaker Chinese economic data. The USD/CAD pair (Dollar-Canadian Dollar) edged higher to 1.3477 (1.3465).

Against the Asian and Emerging Market Currencies, the US Dollar rallied. The USD/THB (Dollar-Thai Baht) pair climbed to 34.12 from 33.85 yesterday. USD/CNH (Dollar-Offshore Chinese Yuan) soared to 6.9980 from 6.9650. Overnight, USD/CNH traded to 6.9999, its highest this year.

The Euro (EUR/USD) settled modestly lower to 1.0860 (1.0890) while Sterling (GBP/USD) eased to 1.2483 against 1.2523 yesterday. Against the Yen, the Dollar (USD/JPY) rallied 0.25% to 136.37.

The Dollar Index (USD/DXY), a favorite gauge of the Greenback’s value against a basket of 6 major currencies rallied to 102.22 from 101.80 yesterday.

Economic data released yesterday saw Australia’s Westpac Bank Consumer Sentiment slide too -7.9% from a previous 9.4%. China’s Unemployment Rate eased to 5.2% from 5.3%.

The UK’s Claimant Count Change (change in the number of people claiming unemployment benefits) rose to 46,700 against expectations of 31,200 and a previous upward revised 26,500 from 18,800.

Germany’s ZEW Economic Sentiment fell to -10.7 against estimates at -5.7 and a previous 4.1. The Eurozone’s Flash Q1 GDP matched forecasts at 0.1%.

Canada’s CPI April CPI (m/m) rose to 0.7% from a previous 0.5%, which were estimates. Annual trimmed-mean CPI rose to 4.2%, higher than forecasts at 4.1% but below 4.4% previously.

US April Headline Retail Sales fell to 0.4% against forecasts of 0.8%. Core Retails Sales dipped to 0.4%, lower than estimates of 0.5%. U.S. April Capacity Utilization Rate matched estimates at 79.7%.

AUD/USD – Rising risk aversion pushed the Aussie Battler down to an overnight low at 0.6651 from yesterday’s 0.6700 before settling at its current 0.6655. The AUD/USD pair traded to an overnight high at 0.6710. Weaker than forecast Chinese data weighed on the Battler.EUR/USD – The shared currency slid against the broadly based stronger US Dollar to 1.0860 from 1.0890 yesterday. The overnight low traded was at 1.0855 while the overnight high recorded was at 1.0904.GBP/USD – Sterling fell modestly to finish at 1.2483 from yesterday’s 1.2523. The British currency soared to an overnight high at 1.2546 before easing. The overnight low traded for the GBP/USD pair was at 1.2465.USD/JPY – The Dollar rallied against the Japanese currency to 136.37 against 136.00 yesterday supported by a rise in US bond yields. In choppy trade, the overnight high traded was at 136.68 while the overnight low recorded was at 135.63.On the Lookout:

Today’s economic calendar kicks off with Japan’s GDP Growth Rate (q/q f/c 0.1% from 0%; y/y f/c 0.7% from 0.1% - ACY Finlogix).

Japan also releases its March Final Industrial Production (m/m f/c 2% from 4.6%; y/y f/c 1.2% from -0.5% - ACY Finlogix), Japanese March Capacity Utilization (m/m f/c 1.3% from 3.9%).

Australia releases its Wage Price Index (q/q f/c 0.9% from 0.8%; y/y f/c 3.6% from 3.3% - ACY Finlogix).

China follows with its April House Price Index (y/y f/c -0.2% from -0.8% - ACY Finlogix). France starts off Europe with its Unemployment Rate (f/c 7.1% from 7.2% - ACY Finlogix).

Italy follows with its Balance of Trade data (f/c +EUR 0.6 billion from +EUR 2.108 billion – ACY Finlogix).

The Eurozone releases its April Final Headline CPI (y/y f/c 7 % from 6.9%), April Final Core CPI (y/y f/c 5.6% from 5.7% - ACY Finlogix) and Eurozone April CPI (m/m f/c 0.7% from 0.9% - ACY Finlogix).

Canada starts off North America with its March New Motor Vehicle Sales (m/m f/c 133.1k from a previous 109.78k – ACY Finlogix).

The US rounds up today’s reports with its April Housing Starts (m/m f/c 1.4 million from 1.42 million; m/m f/c -1.5% from -0.8% - ACY Finlogix) and US April Building Permits (m/m f/c 1.437 million from 1.43 million; m/m f/c 0.2% from -7.7% - ACY Finlogix).

Trading Perspective:

Rising risk aversion weighed on equities and lifted US bond yields and the Dollar.

Ongoing US debt ceiling talks have failed to reach an agreement, although expectations of a resolution by the end of the week remain high.

The Greenback will stay bid but keep within the overnight ranges.

Economic data released today will also be closely watched.

The USD/CNH pair (US Dollar-Offshore Chinese Yuan) traded to 6.9999, its highest level this year, before closing at 6.9975.

This development is supportive of the Greenback. Watch for this currency pair in Asia today.

AUD/USD – Focus remains on the risk leading Australian Dollar where we can expect further volatility. The AUD/USD pair closed 0.7% lower to 0.6655 in choppy trade. Immediate support for today lies at 0.6650 followed by 0.6620 and 0.6590. On the topside look for immediate resistance at 0.6685 and 0.6705 to cap any rallies. Likely range today: 0.6630-0.6730. Selling rallies is still the way to go. (Source: Finlogix.com)EUR/USD – The shared currency slid to 1.0860 in New York from yesterday’s 1.0890. Immediate support can be found at 1.0840 followed by 1.0810. On the topside, look for immediate resistance at 1.0885 and 1.0905 to cap any rallies. While the Euro trades on the soft side, am wary at current levels which are near April lows. Likely range today: 1.0830-1.0930. Look to trade the range.USD/JPY – Higher US bond yields boosted the Greenback against the Japanese Yen to a 136.37 finish in New York. Yesterday, the USD/JPY pair opened at 136.00. For today, look for immediate resistance at 136.70 (overnight high traded was at 136.68). The next resistance level is found at 137.00. Immediate support can be found at 136.00 followed by 135.70 (overnight low recorded was 135.63). Likely range today 135.70-136.70. Trade the range.GBP/USD – Sterling slid 0.35% against the Greenback to settle at 1.2483 (1.2523). On the day look for immediate support at 1.2450 and 1.2420. Immediate resistance can be found at 1.2510 and 1.2540 (overnight high traded was 1.2546). Look for the British currency to drift lower against the US Dollar as risk aversion stays elevated. Likely range today: 1.2450-1.2550. Trade the range.

Have a good trading day ahead, happy Wednesday all.

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