AUD tumbles, EUR climbs, JPY ends flat on intervention threats

Uptick in US retail sales lifts DXY, bond yields dip, stocks rally

Summary:

The Euro outperformed its FX peers, edging higher to 1.0900 from 1.0885 previously. Markets were not expecting much from the ECB at its monetary policy meeting tomorrow.

The ECB is widely expected to hold the key interest rate unchanged, at 4.25%. Members of the ECB’s Governing Council remained vague, in line with their data-dependent approach.

Meantime, the Dollar Index (DXY), a popular measure of the Greenback’s value against a basket of 6 currencies, grinded higher to 104.22 (104.07). US Retail Sales climbed to 0.0% in June, beating expectations of -0.3%. Core Retail Sales rose 0.4% from 0.1% previously.

Currency traders see the US Federal Reserve cutting interest rates in September by 0.25 basis points. The US central bank is widely expected to trim the key Fed Funds Rate to 5% from 5.25%.

While global bond yields fell, US rates were the least affected. The 10-year treasury yield eased to 4.16% from 4.18% previously. Australia’s 10-year bond yield dropped to 4.25% from 4.32%.

The Australian Dollar underperformed, tumbling 0.4% to 0.6735 from 0.6770. The Aussie began its decline on Monday following a fall in China’s Annual Retail Sales to 2% from 3.7%.

Australia’s exports to China, its largest trading partner, saw an increase of 18.2% in 2023. Base metals were lower. Copper prices plummeted 1.59% on China’s slowdown.

Against the Japanese Yen, the US Dollar was little changed at 158.30 (158.20). The threat of intervention by Japan Inc (BOJ, MOF) kept a lid on USD/JPY. Lower US bond yields also prevented any strong rallies in the Greenback against the Yen.

Sterling (GBP/USD) climbed to 1.2972 from 1.2965. The UK releases its June Inflation report later today. Britain’s Annualized CPI is expected to hold steady. UK PPI is forecast to climb modestly.

The US Dollar finished mixed against the Asian and Emerging Market Currencies (EMFX). The USD/CNH pair rose to 7.2885 from 7.2770. Against the Thai Baht, the US Dollar slid to 36.00 from 36.15. The USD/SGD pair (Dollar-Singapore Dollar) rallied to 1.3445 (1.3425).

Wall Street stocks rose. The DOW soared 1.8% higher to finish at 40,970 (40,070) while the S&P 500 was up at 5,670 (5,620). Japan’s Nikkei rallied to 41,580 from 41,255 previously.

• EUR/USD – The shared currency edged higher to finish at 1.0900, up from 1.0885 previously. The Euro traded to an overnight high at 1.0905 before easing. The overnight low recorded for the EUR/USD pair was 1.0871.
• USD/JPY – The Dollar settled at 158.30 from 158.20 previously. In another choppy trading session, the USD/JPY pair traded to an overnight high at 158.86 before easing. The overnight low recorded for the USD/JPY pair was 157.99.
• AUD/USD – The Aussie Battler settled at 0.6735, down from 0.6770 previously. The weaker-than-expected Chinese Retails Sales data weighed on the antipodean currency. The AUD/USD pair traded to a low at 0.6714. The overnight high traded was 0.6763.
• GBP/USD – Sterling rallied modestly to 1.2972 from 1.2965. The British Pound traded to an overnight high at 1.2980 before easing. The overnight low recorded for Sterling was at 1.2938.

On the lookout:

Today’s economic calendar kicked off earlier with New Zealand’s GDT Milk Price Index, up 0.4% from -6.9% previously. The Kiwi (NZD/USD) jumped to 0.6062 from its New York close at 0.6047. New Zealand’s CPI follows (q/q f/c 0.6% from 0.6%; y/y f/c 3.5% from 4.0% - ACY Finlogix).

Australia follows with its Westpac Bank June Leading Index (f/c 0.2% from 0.0% - ACY Finlogix). The UK starts off Europe with its UK June Inflation Rate (m/m f/c 0.1% from 0.3%; y/y f/c 2% from 2% - ACY Finlogix), UK June Core Inflation Rate (y/y f/c 3.5% from 3.5%).

Up next is UK June Core PPI Input (m/m f/c 0.1% from 0%), UK June Core PPI Output m/m (f/c 0.1% from -0.1% - ACY Finlogix). The Eurozone follows with its Eurozone Final June Inflation Rate (y/y f/c 2.5% from 2.6%), Eurozone Final June Core Inflation Rate (y/y f/c 2.9% from 2.9% - ACY Finlogix). The US rounds up today’s economic data releases with its June Building Permits (f/c 1.39 million from 1.39 million) and June Housing Starts (f/c 1.31 million from 1.277 million).

Trading perspective:

The Dollar Index rallied modestly to 104.22 from 104.07 lifted by the rise in US Retail Sales. Despite a higher than expected read in Retail Sales, US bond yields dipped. The benchmark US 10-year rate settled at 4.16% from 4.18%. Markets widely expect the Fed to trim rates in September. The bond rates of other global rivals, however, fell more than those of the US. Germany’s 10-year Bund yield slumped 7 basis points to 2.42%. The UK 10-year Gilt yield closed at 4.05% from 4.11% previously.

Look for consolidation today ahead of tonight’s release of US Housing and Building Permits. Several other Federal Reserve officials are expected to speak today (FOMC members Kugler and Barkin).

• EUR/USD – The shared currency climbed to finish at 1.0900, up from 1.0885 previously. On the day, look for immediate resistance at 1.0910 followed by 1.0940. Immediate support can be found at 1.0870 (overnight low traded was 1.0871). The next support level lies at 1.0840. Look for the Euro to consolidate in a likely trading range of 1.0850-1.0920 today. At current levels, prefer to sell rallies to 1.0950.
• AUD/USD – The Aussie Battler tumbled against the Greenback, underperforming its peers. Look for immediate support in the AUD/USD pair at 0.6700 followed by 0.6670. On the topside, immediate resistance can be found at 0.6770 (overnight high traded was 0.6763). The next resistance level lies at 0.6800. Look for the Aussie to trade in a likely range between 0.6680-0.6780 today. Prefer to sell Aussie rallies to 0.68 cents.

• USD/JPY – The Dollar kept its bid against the Japanese Yen despite intervention threats. Look for immediate resistance today at 158.55, 158.85 (overnight high) and 159.15. On the downside, immediate support can be found at 158.00, 157.70 and 157.40. Expect more choppy trade. Likely range today: 157.90-159.30. Trade the range, nice and wide. Keep a wary eye out for Japan Inc.
• GBP/USD – Sterling ground higher against the US Dollar to finish at 1.2972 from 1.2965. On the day, look for immediate resistance at 1.3000 followed by 1.3030. Immediate support lies at 1.2940 (overnight low traded was 1.2938). The next support level lies at 1.2910. Look for consolidation in the British Pound today, likely between 1.2880-1.3020. Preference is to sell Sterling on strength.

Have a good trading day ahead all. Happy Wednesday.