Dollar Climbs as US Debt Ceiling Talks Fail to Generate Deal

Stocks Slump, AUD, NZD, EMFX Slide, EUR Dips on Weak PMI

Summary:

The Dollar rallied on risk-off as US lawmakers failed to agree on increasing the US debt ceiling ahead of a looming deadline. Wall Street stocks slumped. The DOW fell to 33,080 from 33,380 yesterday while the S&P 500 slid to 4,147 against 4,187.

A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) soared to 103.65, a 2.1/2 month high before dipping to close at 103.25.

US April New Home Sales bettered expectations, climbing to 683,000 against 665,000. US Flash Manufacturing PMI fell to 48.5 from 50.2. Flash Services though rose to 55.1 from 53.6, a 13-month high. The US Composite PMI rose to 54.5, beating expectations at 50.

US bond yields edged up. The 10-year treasury yield settled at 3.69% against yesterday’s 3.67%. The 2-year bond rate rose 5 basis points to 4.32%. Other global bond rates were also higher.

Against the Japanese Yen, the Greenback (USD/JPY) soared to 138.91, its highest since November last year, before easing to settle 138.60. Japan’s 10-year JGB yield was unchanged at 0.39%.

The Euro (EUR/USD) dipped back under the 1.08 level, to 1.0770 at the close of trade. The shared currency slid to an overnight and March 24 low of 1.0760. Eurozone Manufacturing PMI in May fell.

Sterling (GBP/USD) dipped to 1.2415 from 1.2445 yesterday. The British Pound slumped to an overnight low at 1.2372, its weakest since April 21. UK Manufacturing PMI fell to 46.9 from 47.8.

Ahead of this morning’s RBNZ monetary policy meeting, the Kiwi (NZD/USD) eased to 0.6250 from 0.6275 yesterday. The RBNZ is widely expected to lift its Official Cash Rate by 25 basis points to 1.5%.

The Australian Dollar (AUD/USD) weakened to 0.6610 (0.6650) on broad-based US Dollar strength. Against the Asian and Emerging Market currencies, the US Dollar rallied. The USD/CNH pair (Dollar-Offshore Yuan) rose to 7.0660 from 7.0220 yesterday.

Economic data released yesterday saw Japan’s BOJ Annual Core CPI climb to 3% from 2.9%. The US Richmond Manufacturing Index slid to -15 from -10 previously.

This morning New Zealand’s Q1 Retail Sales dropped 1.4% against -0.6% previously and lower than median estimates at 0.2%.

NZD/USD – The Kiwi dipped to 0.6550 from yesterday’s close at 0.6575. Broad-based US Dollar strength weighed on the Kiwi. Overnight, the Flightless Bird tumbled to a low at 0.6233. In choppy trade, the overnight high recorded was at 0.6304.EUR/USD – The shared currency eased to 1.0770 in late New York against yesterday’s open at 1.0805. Overnight, the Euro traded to an overnight and March 24 low at 1.0760 before steadying to 1.0770. The overnight high traded was at 1.0821.AUD/USD – The Aussie Battler slid against the broadly based stronger Greenback to close at 0.6610, down 0.6% from yesterday’s 0.6650. The overnight low recorded for the Aussie was 0.6607 while the high traded was at 0.6662. Weaker Asia-EMFX also weighed on the Aussie.USD/JPY – Higher US bond yields lifted the Greenback against the Japanese Yen to a 138.58 finish against 137.97 yesterday. Overnight, the USD/JPY pair soared to a high at 138.91. The overnight low traded was at 138.24.On the Lookout:

Other economic data released today saw Japan’s Reuters May Tankan Index climb to 6, up from a previous -3 and better than median forecasts at 1.

The UK follows with its April Headline CPI (y/y f/c 8.2% from 10.1%; m/m f/c 0.8% from 0.8% - ACY Finlogix), UK April Core CPI (y/y f/c 6.2% from 6.2% - ACY Finlogix).

Germany releases its May IFO Business Climate (f/c 93 from 93.6 – ACY Finlogix). The UK follows with its May CBI Industrial Trends Orders (f/c -15 from -20 – ACY Finlogix).

Canada starts off North America with its April Manufacturing Sales data (m/m f/c -0.4% from -0.1% - ACY Finlogix).

The big event is the US Federal Reserve FOMC meeting minutes which will be released at 4 am Sydney time.

Trading Perspective:

The Dollar finished higher against it’s Rivals supported by the market’s risk-off stance and rising bond yields. Strong US Services and Composite PMI data bolstered the Greenback.

Expect the US currency to stay bid against its Rivals. The risk for the US Dollar is a failure by US lawmakers to agree a deal on the debt ceiling by June 1.

While the uncertainty weighs on risk appetite which supports the Greenback, actual failure by the deadline to agree a deal could see investors flee from the US currency. Meantime, volatility in FX trading will stay elevated.

EUR/USD – The shared currency dipped against the Dollar to 1.0760, matching March 24 lows. Immediate support today lies at 1.0760, just under the overnight low. A break below 1.0760 will see the next support at 1.0730 tested. On the topside, look for immediate resistance at 1.0790 followed by 1.0820 (overnight high traded was 1.0821). Look for further choppy trade in the Euro today, likely range between 1.0740-1.0840.AUD/USD – The Aussie lost ground against the broadly based stronger Greenback, settling at 0.6610. The overnight low traded was at 0.6607. Look for immediate support today at 0.6590 followed by 0.6560. On the topside, immediate resistance lies at 0.6640 and 0.6670 (overnight high traded was 0.6662). The Aussie trades heavy, and a test at 0.6600 is likely. Look to trade a likely range today of 0.6585-0.6685 today.USD/JPY – The Dollar climbed against the Japanese Yen to finish at 138.60 (137.95). Overnight high traded was at 138.91. Look for immediate resistance today at 138.90 followed by 139.20. Immediate support can be found at 138.20 (overnight low traded was 138.24). The next support level lies at 138.00. Look for another choppy trading day on this currency pair, likely range between 138-139. Trade the range.NZD/USD – The Kiwi is in the spotlight today with the RBNZ widely expected to hike its Official Cash Rate by 25 basis points to 1.5%. If the RBNZ does so, expect the Kiwi to drift lower. The NZD/USD pair closed at 0.6247. Immediate support can be found at 0.6230 (overnight low traded was 0.6233). The next support level lies at 0.6200. Immediate resistance lies at 0.6660 followed by 0.6690. A surprise rate increase of 50 basis points from the RBNZ will could see the Flightless Bird sprout wings and soar through 0.6700. Expect a roller coaster ride on the Kiwi today. Happy days!

Have a good trading Wednesday ahead all.

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