Fitch Downgrades US Foreign Currency Rating, DXY Eases

AUD Plummets, RBA Stands Pat on Rates; USD/JPY Dips

Summary:

The Australian Dollar (AUD/USD) plummeted after the RBA left cash rates unchanged. The Aussie Battler fell to its sharpest daily drop in a month, closing at 0.6615 from 0.6655. Most market participants had expected the RBA to lower its cash rates by 25 basis points. 

Against the Yen, the Dollar (USD/JPY) soared to 143.35 (141.02), three-week highs boosted by a rise in US bond yields. The benchmark 10-year treasury yield climbed 7 basis points to 4.02%. 

In early Asia, international credit rating agency Fitch downgraded the US foreign currency rating to AA+ from AAA. The US Dollar eased modestly. USD/JPY slid back to 142.90. 

The Dollar Index (DXY), a favored measure of the Greenback’s value against a basket of 6 major currencies traded to 102.22 a 3-week high before easing to 101.75, unchanged from yesterday. 

Sterling (GBP/USD) slid to 1.2775 (1.2852) while the Euro (EUR/USD) rallied back to 1.100 from 1.0985 in early Asia as the Fitch news hit the wires. The overnight low for EUR/USD was 1.0952. 

Against the Asian and Emerging Market currencies, the Dollar finished mixed. The USD/CNH pair (Dollar-Offshore Chinese Yuan) climbed to 7.1790 from 7.1550. USD/SGD (Dollar-Singapore Dollar) rose modestly to 1.3350 from 1.3320 yesterday. 

Other global treasury yields rose. Germany’s 10-year Bund yield climbed to 2.55% from 2.49% yesterday. The UK 10-year Gilt rate was last at 4.39%, up 7 basis points from yesterday. 

Economic data released yesterday saw Australia’s Judo Bank Final July Manufacturing PMI ease to 49.6 from 48.2 as forecast. The RBA kept its cash rate unchanged at 4.10%. Most analysts had expected the Australian central bank to increase the cash rate to 4.35%. 

The UK’s Nationwide House Price Index eased to -0.2% from 0.1% previously but higher than estimates at -0.5%. The UK Final Manufacturing PMI edged up to 45.3 from 45.0. 

Germany’s Final July Manufacturing PMI was unchanged at 38.8. The Eurozone July Final Manufacturing PMI was unchanged as well, at 42.7, which was what analysts expected. 

Canada’s Final Manufacturing PMI rose to 49.6 from a previous 48.8. The US July Final Manufacturing PMI was unchanged, at 49.0, which was what analysts had forecast. US July ISM Manufacturing PMI eased to 46.4 against expectations at 46.9.

USD/JPY – The Dollar rebounded against the Japanese Yen to 143.35 at the New York close, up from yesterday’s 141.02. The Fitch downgrade of the US currency rating in early Asia saw the USD/JPY pair ease further to 142.98. Overnight, the USD/JPY traded to a high at 143.54 while the overnight low recorded was 142.25.AUD/USD – The Aussie Dollar was pummeled lower to 0.6599 overnight and one-month lows before rebounding in late New York to 0.6615. The RBA left its Overnight Cash Rate unchanged at 4.10%, against expectations for an increase to 4.35%. In choppy trade, the Aussie Battler traded to a high at 0.6723.EUR/USD – The Euro edged back above the 1.1000 level to 1.1008 currently. At the close of trade in New York, the EUR/USD pair was at 1.0985, modestly lower from 1.1020. In early Asia the EUR/USD pai traded to a high at 1.1023 on the Fitch news before easing to settle at 1.1009 currently. The overnight low traded for the Euro was 1.0952.GBP/USD – Sterling edged up to 1.2790 currently from its New York close at 1.2775 after the Fitch news hit the newswires. The overnight low recorded for the British Pound was at 1.2742 in choppy trade. In early Asia, Sterling hit a high at 1.2810 before easing to its current 1.2792.On the Lookout:

Today’s economic calendar kicked off with New Zealand’s Global Dairy Trade Price Index, which fell to -4.3% from -1.0%.

New Zealand also released their Employment report.

Jobs Creation in Q2 of 2023 rose 1% from a previous 0.8%, and expectations of 0.5%.

New Zealand’s Q2 Unemployment Rate rose to 3.6% from 3.4%, and higher than forecasts at 3.5%.

In all this the Kiwi (NZD/USD) was little changed at 0.6140 from 0.6150 prior to the data.

Australia released its AIG July Manufacturing Index which slid to -25.6 from -19.8 previously, and lower than estimates at -22.

Switzerland starts off European data with its Swiss Consumer Confidence (f/c -22 from -29.7 – ACY Finlogix) and Swiss July Manufacturing PMI (f/c 44 from 44.9 – ACY Finlogix).

The US rounds up today’s light data releases with its July ADP Private Employment Change (f/c 189,000 from a previous 497,000 – ACY Finlogix).

Trading Perspective:

Expect the Greenback to remain under modest downward pressure in Asia today following the Fitch downgrade.

Markets will focus on the US ADP Employment report, which measures the monthly change in private employment based on the data from approximately 400,000 business clients.

The ADP report is always released 2 days ahead of the US Non-Farms Payroll number (this Friday, 04 August).

The change in this indicator can be volatile.

Markets are expecting a large drop in July ADP Employment to a median 189,000 from 497,000 in June.

If the ADP number falls substantially below the 189,000 expected, say to 100,000, expect the US Dollar to drop.

An ADP number above 189,000 to around 220,000 or higher will see a rebound in the Greenback.

Expect volatility to pick up prior to, and after the release.

USD/JPY – The Dollar rebounded against the Yen to 143.35 (141.02) after the BOJ meeting minutes revealed that board members saw no need to make any tweaks to the Yield Curve Control at this point. Immediate resistance today lies at 143.55 (overnight high traded was 143.54). The next resistance lies at 143.85. Immediate support is found at 143.00 followed by 142.70 and 142.40. Look for more choppy moves in USD/JPY, likely between 142-143.50.

(Source: Finlogix.com)

AUD/USD – The Australian Dollar was pounded lower to 0.6615 from yesterday’s close a 0.6655 after the RBA kept its Official Discount Rate at 4.10%. Analysts had forecast an increase of 25 basis points. Look for immediate support at 0.6585 followed by 0.6555. Immediate resistance can be found at 0.6650, 0.6680 and 0.6710. Look for the Aussie to trade a likely range today of 0.6570-0.6670 today. Prefer to buy dips today on a weakening US Dollar scenario.EUR/USD – The shared currency rose modestly to 1.1000 from its New York close at 1.0985 on the Fitch news. Look for immediate resistance on the Euro at 1.1030 and 1.1060 to cap any rallies. On the downside, immediate support can be found at 1.0950 (overnight low traded was 1.0952). The next support level is found at 1.0920. Look for the Euro to trade in a likely range today of 1.0950-1.1050. Prefer to buy dips to 1.0950.GBP/USD – After sliding to 1.2775 in late New York (from Monday’s 1.2852, the British Pound rallied back to 1.2810 on the Fitch news. As Asian markets open, Sterling currently trades around 1.2780. Immediate support can be found at 1.2750 and 1.2720. On the topside, immediate resistance lies at 1.2810, 1.2840 and 1.2880. Look for more choppy trade in Sterling, likely between 1.2740 and 1.2840. Prefer to sell rallies.Have a good Wednesday ahead all. Happy trading.

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