Currency Updates:
AUD/USD The chop fest in AUDUSD continued as a shocking revision to Q1 US GDP (-2.9%) and weaker Durable Goods Orders (-1%) hit the USD pretty much across the board and saved the AUD bulls (for now) from a collapse in Aussie interest rates. The break lower in US rates is only surpassed by those in Australia and sets up a conundrum for the Street where opinion seems evenly divided. While Oz is quickly becoming a less attractive carry play, the FX markets are still willing to give the benefit of doubt to the risk-on trade. AUD is stuck as a result. Chinese and Australian equity markets look heavy and the Europeans have all given back their post-ECB gains, closing below June 5 levels. Even though the US market held up today, yesterday’s key reversal in the S&P is still in play (barring new highs) and we feel that a risk-off trade…and a lower AUDUSD…can’t be dismissed.
EUR/USD opened NYC 1.3604, “unch” vs last night’s close, O/N range 1.3601/19. Profit-taking in EUR/GBP pulled EUR higher overnight but ranges remained tight. US GDP data was not expected to generate much of a stir but the massive downgrade TO -2.9% sparked a stop loss jag in EUR/USD. GDP to 1.3651 paid and bid. US 10-Yr yields dropped 5bp, -1.0% US durable goods vs “0” f/c aiding and abetting. Non-defence ex- aircraft at +0.7% however was a beat (f/c +0.5%) and there were small upgrades to previous. Furthermore health care spending impacted the numbers. Better than f/c Markit flash composite & Svcs PMIs helped turn bond yields up and by the close were just 1.3bp below the open. EUR/USD closed 1.3629.
USD/JPY A sharp, short break lower for USD/JPY below recent lows and the daily Kijun at 101.80-81 was precipitated by a huge downward revision to US Q1 GDP. Ancient history and skewed by healthcare stat adjustments (ACA), the data did not have lasting impact on either Tsy yields or the USD. Curve flattening actually lifted S-T rates as L-T rates dipped. Stock futures, US & Japanese, dipped on the headlines, but then rebounded, allowing USD/JPY to hold above its June 12 swing low of 101.60 after piercing the 200-DMA at 101.69. Prices are back above the 101.75 Cloud base as we head toward the NY close, though the 101.97 high is now below the daily Tenkan. Vols remain at L-T lows and a Reuters poll shows most expect the BOJ to launch QQE2 before year-end. EUR/JPY remains stuck in tight ranges below its 200-DMA & offers at 139. Carney’s less hawkish appearance Tuesday left GBP/JPY to work off a bit more of its overbought condition, but NZD/JPY shook off a two-day pullback after using the daily Cloud top for support today. RBNZ rate hike and RBA rate cut expectations clearly favoring long NZD carry trades. MOF flows tonight.
Looking Ahead – Events, Other Releases (GMT)
• No Significant Events
