Dollar Ends Flat, Powell Reiterates Caution on Rates

Kiwi Dips, RBNZ Forecast to Hold OCR at 5.5% Today 

Summary:

The Dollar Index, a popular gauge of the Greenback’s value against a basket of six major currencies, finished flat, at 105.00 as markets assessed Jerome Powell’s comments.

Testifying at the Semi-annual Monetary Policy report to the US Congress, Powell expressed apprehension on announcing a rate cut. Powell reiterated that unless there is more evidence inflation is gravitating toward the 2% target, high inflation remains a risk. 

Markets awaited the US June CPI report, due tomorrow (11 June). US bond yields edged up with the 10-year note settling at 4.30% (4.28% yesterday). The 2-year yield rose to 4.63% (4.62%). 

The Kiwi (NZD/USD) dipped to 0.6125 from 0.6130 yesterday. The Reserve Bank of New Zealand (RBNZ) is expected to keep its Official Cash Rate (OCR) unchanged, at 5.5% at the conclusion of its monetary policy meeting today (12 noon, Sydney). 

The Australian Dollar (AUD/USD) settled near its January highs at 0.6740 (0.6745). Australia’s RBA is likely to be one of the last G10 countries’ central banks to trim interest rates. 

The Euro (EUR/USD) held on to its gains above the 1.08 level, settling at 1.0812 (1.0830 yesterday). Political uncertainty remained in France with no major party gaining an outright majority. 

Sterling (GBP/USD) steadied to 1.2785 (1.2810 yesterday). The outright majority by the UK Labor Party led by Keir Starmer in the UK parliamentary elections brought stability to the British Pound. 

Against the Yen, the Dollar rallied to 161.30 from 160.80. Widening differentials between US and Japanese yields supported the Greenback. Japan’s 10-year JGB rate eased to 1.07% (1.08%). 

The US Dollar was mixed against the Asian and Emerging Market Currencies (USD/EMFX). The USD/CNH (Dollar-Offshore Chinese Yuan) edged up to 7.2890 (7.2880). The USD/SGDpair (Dollar-Singapore Dollar) dipped to 1.3495 from 1.3502. 

Other economic data released yesterday saw Japan’s Preliminary Machine Tool Orders climb 9.7% from 4.2%, beating forecasts at 2.3%. Australia’s National Australia Bank (NAB) Business Confidence Index climbed to 4 from a previously upward adjusted -2, boosting the Aussie. 

Germany’s Trade Surplus climbed to +EUR 24.9 billion from +EUR 22.2 billion previously, beating estimates at +EUR 19.9 billion. 

NZD/USD – Ahead of today’s RBNZ monetary policy meeting, the Kiwi dipped to 0.6125 from 0.6130. New Zealand’s central bank is widely expected to keep its Official Cash Rate unchanged at 5.5%. Any changes to the RBNZ’s communication could see choppy trading in the Kiwi, also known as the “Flightless Bird.”EUR/USD – the Euro steadied against the US Dollar, finishing above 1.0800 to 1.0812. The shared currency traded to an overnight high at 1.0834 before easing. The overnight low recorded for the EUR/USD pair was at 1.0823.AUD/USD – the Australian Dollar dipped to 0.6740 from 0.6745 yesterday. The Aussie rallied to an overnight high at 0.6748. The overnight low traded was 0.6732. A rise in Australia’s NAB Business Confidence and the RBA’s hawkish stance lifted the Aussie.GBP/USD – Sterling settled at 1.2785, modestly lower from yesterday’s 1.2810. The British currency steadied following the Labor Party’s outright majority result in the UK Parliamentary election. The GBP/USD pair traded to an overnight high at 1.2801.On the Lookout:

Today’s light economic calendar kicked off with New Zealand’s May Annual Visitor Arrivals which rose 12.1%, up from 1.7% previously. Japan released its June Producer Price Index, y/y up to 2.9% from 2.6%; m/m down to 0.2% from 0.7% previously.

China releases its June CPI (m/m f/c -0.1% from -0.1% - ACY Finlogix; y/y f/c 0.4% from 0.3% - ACY Finlogix), and Chinese June PPI (y/y f/c -0.8% from -1.4% - ACY Finlogix). The RBNZ is not expected to keep its Overnight Cash Rate unchanged at 5.5%. Italy kicks off Europe with its Italian May Industrial Production (m/m f/c 0.1% from -1%; y/y f/c -2.1% from -2.9% - ACY Finlogix). 

China is expected to release its June Foreign Direct Investment (y/t/d) (y/y) no forecast, previous was -28.2% - FX Street). US Federal Reserve officials, Michelle Bowman, Austan Goolsbee and Lisa Cook are all expected to deliver speeches at various events in the U.S. 

Trading Perspective:

While Federal Reserve President Jerome Powell has expressed apprehension on announcing a rate cut, US treasury yields edged up. Although the 10-year bond yield edged up to 4.30% from 4.28%, the benchmark is still below its 4.40% reached at the start of this month. This should keep the US currency’s topside limited until more Fed speak. Several Fed officials are due to make speeches in the coming days. Jerome Powell is due to testify again later today, on the semi-annual Monetary Policy report before the House Financial Services Committee in Washington DC. 

The Dollar Index (DXY) settled flat at 105.00. Immediate resistance at 105.20 should cap any gains for the Greenback. On the downside, the support level at 104.80 should hold. A break of that level could see the DXY lower to 104.05 (June 7 low). Expect more choppy trading sessions ahead.

NZD/USD– focus is on the Kiwi today with the RBNZ holding its monetary policy meeting today. New Zealand’s Reserve Bank is expected to keep the Official Cash Rate unchanged at 5.5%. With no press conference from RBNZ Governor Adrian Orr, markets will be looking for clues from the central bank’s Monetary Policy Statement (MPS). Immediate resistance lies at 0.6140 and 0.6170. Look for immediate support at 0.6100, 0.6070 and 0.6040. Expect a choppy one today, likely between 0.6070-0.6170. Source: Finlogix.comAUD/USD- the Australian Dollar has immediate resistance today at 0.6750 followed by 0.6780. On the downside, look for immediate support at 0.6720 and 0.6690. Look for consolidation today in a likely range between 0.6685-0.6785 today. Trade the range today with an eye out on the Kiwi.USD/JPY– the Dollar steadied against the Japanese Yen, settling at 161.30 (160.80 yesterday). Immediate resistance today lies at 161.60 (overnight high traded was 161.52). The next resistance level lies at 161.90. Immediate support can be found at 161.00 followed by 160.70 and 160.40. Look for more choppy trading today, likely between 160.70-161.70. Trade the range, nice and wide.EUR/USD – following several choppy sessions due to the French elections, the Euro steadied to finish at 1.0812 (1.2785 yesterday). Look for immediate resistance in the shared currency at 1.0835 (overnight high traded was 1.0832). The next resistance level can be found at 1.0865 and 1.0895. Immediate support can be found at 1.0790 (overnight low traded was 1.0797). The next support level lies at 1.0760. Look for the Euro to trade in a likely 1.0770-1.0870 range today. Prefer to sell Euro on strength.Happy trading and Wednesday ahead all. 

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