Currency Updates:
AUD/USD The combination of soft OZ data, IMF China warning and ascending US bond yields saw Europe push AUD/USD from 0.9330 to below 0.9300 into NY’s open. Yields remained firm in early NY and AUD/USD slipped further to hit a new trend low of 0.9280. No further losses were possible though after Chicago PMI missed estimates. US yields and the USD softened and NorAm equity mkts tanked. AUD/USD clawed its way up for the remainder of the session as shorts decided to cover a bit ahead of key data risk due. Late in the day AUD/USD sat just above 0.9300. The Asia session is likely impacted by China’s NBS & HSBC July Mfg PMIs. Market concerns over China growth are growing and should the data come in weak, AUD/USD is likely to break to a new low. The US jobs report is then key risk. An above f/c jobs report should send the USD broadly higher again. Key support in the 0.9185/0.9205 area then comes into play.
EUR/USD The pair held to a relatively tight range as it consolidated recent losses ahead of key data risk. Europe pushed EUR/USD lower from just above 1.3400 towards 1.3385 into NY’s open. Firm US bond yields o/n pressed the USD higher to aid the pair’s dip. Early NY saw further upside in yields & EUR/USD dipped to 1.3372. Jobless claims were higher than f/c but the prior release saw a nice revision while Q2 Employment Cost came in at 0.7% vs. expected 0.5%. The data helped the pair to the day’s low. Bears couldn’t push further as a mkt well short of EUR looked to cover pre-NFP. A slight lift took hold & the PMI miss gave a boost. US yields & the USD slid off the PMI miss & EUR/USD tested 1.3400 again. A small pullback had the pair near 1.3390 late in the day. Traders now await the US jobs report. Should the report be upbeat, US yields should resume their recent rise & take the USD along with them. A solid jobs report diminishes the Fed’s tip Wednesday regarding labor slack. A good jobs report likely sees EUR/USD bears gun for the weekly cloud base & Nov low (1.3317 & 1.3295 respectively).
USD/JPY Risk came off big chunks in the NorAm session, particularly after the Chicago PMI drop shocked Tsy yields back down to about unchanged. But the derisking move was already well afoot in Europe, following on from Wed’s theme in the face of much higher Tsy yields and despite the FOMC’s still cautious tightening scenario. Equities and credit bore the brunt of today’s derisking, while USD/JPY made another short-lived push past 103 on the first round of US data, only to trundle back to o/n lows with Tsy yields. Interestingly, the yen is not finding a risk-off haven bid to speak of, in part because the recent Japanese data have revived fears that this year’s consumption tax is having a much more negative impact on the economy than the BOJ or the govt thought it would and because the July rise in short-term Tsy yields is underpinning prices. In the wake of Friday’s NFP and July ISM, USD/JPY needs to close above 103 to confirm that daily overbought pressures are not the bigger threat than a retest of the 105.45 Abenomics/QQE peak. 137.83 is EUR/JPY’s on-close pivot pt. Tonight we have Kuroda speaking and the July Markit PMI.
Looking Ahead – Economic Data (GMT)
• 23:30 AU AIG Manufacturing Index Jul 48.9-prev
• 1:30 AU PPI QQ* Q2 0.9%-prev
• 1:30 AU PPI YY* Q2 2.5%-prev
• 1:35 JP Manufacturing PMI Jul 51.5-prev
• 1:00 CN NBS Manufacturing PMI* Jul f/c 51.4, 51-prev
• 1:45 CN HSBC Mfg PMI Final* Jul 52-prev
Looking Ahead – Events, Other Releases (GMT)
• 03:30 JP BOJ Gov Kuroda speaks at seminar hosted by Naigai-Josei Chosa-kai.
