Hawkish Bullock talk boosts AUD, DXY edges up

USD/JPY rebounds, Yen carry trades unwound

Summary:

The Australian Dollar ratcheted higher to 0.6593 from 0.6522 after RBA Governor Michelle Bullock said the central will not hesitate to raise rates again to combat inflation. Her remarks came after the Australian central bank held the cash rate steady at 4.35%.

The Aussie Batter outperformed its peers, climbing against the other major currencies. The Aussie lifted 1.79% higher against the Japanese Yen (AUD/JPY) to 97.05 from 94.35 previously.

Against the Japanese Yen, the US Dollar rebounded to 147.22 from 145.70 as more Yen carry trades were unwound. BOJ Deputy Governor Shinichi Uichida said they won’t raise interest rates if the market is unstable.

The Euro (EUR/USD) dipped to 1.0920 from 1.0930. On Wednesday, the shared currency traded to 1.0960, seven-month highs. Sterling (GBP/USD) though, rallied to 1.2747 from 1.2697. The UK’s S&P Global Manufacturing PMI jumped to 55.3 from 52.2, beating forecasts at 52.7.

The Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of six major currencies, edged up to 103.25 (102.95).

The Greenback was mixed against the Asian and Emerging Market Currencies (EMFX). Against the Thai Baht, the Dollar (USD/THB) slid to 35.18 (35.42). USD/CNH (Dollar-Offshore Chinese Yuan) climbed to 7.1850 from 7.1600.

US Weekly Jobless Claims declined to 233,000 against forecasts of 240,000, and 250,000 previously, easing fears of a more pronounced downturn in the world’s second-largest economy.

Wall Street stocks rebounded with the US S&P 500 surging 2.97% following the better-than-expected Weekly US Jobless Claims report. The DOW jumped to 39,515 from 38,947 previously.

Global bond yields soared. The US 10-year treasury rate settled at 3.99% from 3.89%. Germany’s 10-year Bund yield rose 7 basis points to 2.26%. Japan’s 10-year JGB yield fell to 0.84% from 0.89% following the BOJ’s Uichida’s comments on interest rates.

Australia’s 10-year bond yield rose to 4.07% from 4.02% previously. The UK’s 10-year Gilt yield climbed 6 basis points to 3.98%.

Economic data released yesterday saw Japan’s June Leading Economic Indicators slide to 108.60 from 111.2, and lower than estimates of 109.30. China’s Trade Surplus fell to USD 84.65 billion from USD 99.05 billion previously, missing forecasts at USD 99 billion.

The UK July Halifax House Price Index rose to 0.8% from 0% previously. US Consumer Credit fell to USD 8.93 billion from USD 13.95 billion.

• AUD/USD – The Aussie Dollar soared to finish at 0.6593 from 0.6522 previously, boosted by hawkish comments from RBA Governor Michelle Bullock. The overnight high recorded for the Aussie was 0.6593 while the overnight low was 0.6510 in choppy trade.
• USD/JPY – After plummeting to an overnight low at 145.42 as Yen carry trades were unwound, the Greenback rallied to 147.22 in late New York. In another volatile session, the overnight high recorded for the USD/JPY pair was at 147.54.
• GBP/USD – Sterling rebounded against the Greenback to 1.2747, up from 1.2697. The British Pound traded to an overnight high at 1.2752 while the overnight low recorded was at 1.2665. Following several days of losses, traders unwound their Sterling shorts.
• EUR/USD – The Euro dipped to 1.0920 from 1.0930 previously. The shared currency traded to an overnight high of 1.0945 before easing. The overnight low recorded for the Euro was at 1.0881.

On the lookout:

Today’s economic calendar sees light data releases. China kicks off with its July Inflation Rate (m/m f/c 0.3% from -0.2%; y/y f/c 0.3% from 0.2% – ACY Finlogix), Chinese July PPI (y/y f/c -0.9% from -0.8% - ACY Finlogix). Germany starts off Europe with its July Final Inflation Rate (m/m f/c 0.3% from 0.1%; y/y f/c 2.3% from 2.2% - ACY Finlogix). France releases its Unemployment Rate (f/c 7.5% from 7.5% - ACY Finlogix).

Italy follows with its Final July Inflation Rate (m/m f/c -0.8% from 0.2%; y/y f/c 1.7% from 0.9% - ACY Finlogix). Switzerland follows with it’s Swiss July Consumer Confidence (f/c -36 from -36.6 – ACY Finlogix). China releases its Preliminary Current Account (Surplus f/c USD 65 billion from USD 39.2 billion – ACY Finlogix).

Canada starts off North America with its July Employment Change (f/c 22.5 K from -1.4K – ACY Finlogix), Canadian July Unemployment Rate (f/c 6.5% from 6.4% - ACY Finlogix), and Canadian July Hourly Wages (y/y f/c 6.0% from 5.6% - ACY Finlogix). There are no major US data releases scheduled for today.

Trading perspective:

Markets will look to take a breather today as we come to the end of a busy, volatile week in FX markets. The main story has been the unwind of the Yen carry trade, which involves borrowing in Yen (a low yielding currency) and using it to fund higher yielding currencies like the Australian, New Zealand and US Dollar. A volatile Yen and imminent rate cuts in the US and other countries saw those carry trades favoring the Yen unwound, ie selling JPY and buying back the US Dollar and other currencies, like the Australian Dollar.

With a light economic data release calendar scheduled for today, look for FX volatility to ease somewhat with markets content to stick with overnight ranges. However, bumpy roads still fill the horizon. Keep those tin helmets handy at your side.

• USD/JPY – Look for immediate resistance today at 147.55 (overnight high traded was 147.54). The next resistance level lies at 148.05 followed by 148.55 and 149.05. Immediate support can be found at 146.70, 146.20 and 145.70. Look for more choppy trade in a likely range today of 146-148. Get ready for another roller coaster day in this currency pair. Keep an eye out for comments from Japan Inc.
• AUD/USD – The Aussie Battler soared to close at 0.6593 from 0.6522 previously. Look for immediate resistance today at 0.6630 followed by 0.6680. On the downside, immediate support can be found at 0.6560 followed by 0.6510 and 0.6460. Look for more choppy trade in the Aussie today, likely between 0.6520 and 0.6620. Prefer to sell Aussie rallies.
• EUR/USD – The Euro dipped to finish at 1.0920, little changed from 1.0930 previously. Immediate support for the shared currency lies at 1.0880 (overnight low traded was 1.0881). The Euro sees immediate resistance at 1.0950 followed by 1.0980 and 1.1010. Look for the shared currency to consolidate in a likely range today of 1.0850-1.0950. Prefer to sell Euro on strength.
• GBP/USD – Sterling rallied to 1.2747 from 1.2697 supported by the jump in UK PMIs. Immediate resistance today lies at 1.2780 followed by 1.2810. Immediate support can be found at 1.2750, 1.2720 and 1.2690. Look for the British currency to consolidate in a likely trading range today of 1.2680-1.2780. Prefer to sell Sterling on strength today.

Happy Friday and trading all. Have a top weekend ahead.