Bond Yields Tumble, Dollar Eases on Bostic’s Dovish Talk

Euro, Sterling Climb, USD/JPY Slides, Aussie Rebounds

Summary:

The US 10-year bond yield tumbled 15 basis points to 4.65% after Atlanta Fed President Ralph Bostic said that the US central bank does not need to increase interest rates any further.

Two-year US treasury yields plummeted to 4.96% (5.08%). Other global bond yields finished lower but to a lesser extent than those of the US. Germany’s 10-year JGB rate was at 2.77% (2.88%).

A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) eased 0.28% to 105.75 (106.10). The Euro (EUR/USD) rebounded to finish at 1.0600 (1.0585).

The ongoing Middle East conflict was initially supportive for the US currency. However dovish speak from Bostic and the marked drop in US treasury yields weighed on the Greenback.

Sterling (GBP/USD) climbed against the weaker Dollar to 1.2277 from yesterday’s 1.2237. Bank Of England policymaker Katherine Mann said that central bankers need to be more aggressive.

Against the Japanese Yen, the US Dollar settled at 148.71, modestly lower for yesterday’s 149.25. The Australian Dollar (AUD/USD) edged rebounded to close at 0.6425 (0.6387 yesterday).

The Greenback fell against the Asian and Emerging Market Currencies. USD/CNH (Dollar-Offshore Chinese Yuan) slid to 7.2865 from 7.3080, it’s lowest finish in a week. Against the Thai Baht, the Dollar (USD/THB) plummeted to 35.60 from 36.90. USD/SGD (Dollar-Singapore) was flat at 1.3630.

Wall Street stocks finished stronger as risk appetite improved and the Dollar eased. The DOW gained 0.42% to 33,745 (33,430) while the S&P 500 finished at 4,360 from 4,312 yesterday. Other global stock markets rallied. Australia’s ASX 200 jumped to 7,080 (7,018).

Economic data released yesterday saw UK BRC Retail Sales slump to 2.8% from 4.3%, missing expectations at 3.1%. Australia’s Westpac Bank Consumer Sentiment soared to 2.9% from -1.5%.

Japan’s Economy Watcher’s Sentiment slumped to 49.9 from 53.6 previously, missing estimates at 53.2. Italy’s Industrial Production rose to 0.2% from a downward revised -0.9% (-0.7%).

US September Consumer Inflation Expectations rose to 3.7% from 3.6% while the US NFIB September Business Optimism Index dipped to 90.8 from 91.3 previously, and lower than estimates at 91.1.

• EUR/USD – The Euro rallied above the 1.0600 resistance level against the Greenback to an overnight high at 1.0615 before easing to finish at 1.0600 in New York. In choppy, albeit thin trade, the shared currency hit an overnight low at 1.0554 before rebounding.
• USD/JPY – Against the Japanese Yen, the US Dollar plummeted to an overnight low at 148.16 in choppy trade. The USD/JPY pair traded to an overnight high at 149.10 before sliding to its New York close at 148.70. Yesterday, the USD/JPY pair was at 149.25.
• AUD/USD – The Aussie Battler climbed above 0.6400 to close at 0.6425, up from yesterday’s 0.6385. Talk of Chinese stimulus measures, as well as broad-based US Dollar weakness, buoyed the Australian Dollar. Overnight low traded was 0.6390.
• GBP/USD – Sterling rallied against the broadly based weaker US Dollar to finish at 1.2277, up from yesterday’s 1.2237. The overnight high traded for the British Pound was 1.2291 while the overnight low recorded was 1.2212. Hawkish talk from a BOE official boosted Sterling.

On the Lookout:

The highlight of today’s economic data releases is the US September Headline and Core Producer Price Index.

Headline monthly PPI is forecast to ease to 0.3% from 0.7% - ACY Finlogix. US Annual Core PPI is forecast 2.3% from 2.2% - ACY Finlogix).

US September Core PPI (m/m) is forecast flat at 0.2% from 0.2% - ACY Finlogix. US Annual Core PPI (y/y f/c 1.6% from 1.6% - ACY Finlogix).

Prior to this, New Zealand kicks off today’s data with its August Visitor Arrivals (y/y f/c 38.0% from 59.3% - ACY Finlogix).

Japan follows with its Reuters October Tankan Index (f/c 2 from 4 – ACY Finlogix), Japanese September Machine Tool Orders (y/y f/c -15 from -17.6% - ACY Finlogix).

Germany starts off European data with its German Final Inflation Rate (m/m f/c 0.3% from 0.3%; y/y f/c 4.3% from 6.4% - ACY Finlogix).

China releases its September New Yuan Loans (f/c CNY 2500B from CNY 1360B – ACY Finlogix). Canada starts off North American data with its Canadian August Building Permits (m/m f/c 0.5% from -1.5% - ACY Finlogix).

The US releases its September Producer Prince Index (see above).

Trading Perspective:

The fall in US bond yields took the Dollar lower against its Rivals. In Asia today expect volatility to stay elevated on the current geopolitics.

Traders will be keeping an eye out on the Middle East region for any fallout from the Israel-Hamas conflict to nearby countries.

An escalation would bring flows back into the US Dollar. Federal Reserve President Christopher Waller is due to speak at a summit in Utah, USA.

Markets will be watching his comments closely. Finally, the Fed FOMC meeting minutes will be released early tomorrow, 12 September at 5 am Sydney time).

We can expect more choppy trade ahead. Happy days!

• USD/JPY – It’s a case of haven support versus rising US bond yields for the Dollar against the Japanese Yen. Look for immediate support today at 148.40 and 148.10. On the topside, immediate resistance lies at 149.10 (overnight high). The next resistance level is found at 149.40, 149.70 and 150.00. Look for more choppy trade today in a likely range of 148.20-149.20. Trade the range.

(Source: Finlogix.com)

• EUR/USD – The shared currency benefited from overall US Dollar weakness, rallying to finish at 1.0600 from 1.0585 yesterday. Immediate resistance can be found at 1.0630 (overnight high traded was 1.0615). The next resistance level lies at 1.0660. Immediate support today can be found at 1.0570 and 1.0540. Look for another choppy trading day in the Euro with the likely range between 1.0520-1.0620. Preference is to sell Euro rallies.
• AUD/USD – The Aussie Battler rallied against the broadly weaker US Dollar to 0.6425 at the New York close (0.6385 yesterday). On the day, look for immediate resistance at 0.6430 (overnight high traded was 0.6429). The next resistance level is found at 0.6460 followed by 0.6500. Immediate support lies at 0.6390 followed by 0.6360. Look for the Aussie to trade a likely range today of 0.6370-0.6470. Prefer to buy dips on the Aussie today.
• GBP/USD – The British Pound closed at 1.2277 (1.2237 yesterday). Immediate resistance today lies at 1.2300 (overnight high traded was 1.2294). The next resistance level is found at 1.2340. On the downside, immediate support can be found at 1.2240 and 1.2210 (overnight low traded was 1.2212). Look for more choppy trade in this currency pair, likely range today: 1.2220-1.2320. Trade the range.

Have a top trading day ahead, happy Wednesday all.

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