Market Brief
The US dollar lost ground against all major peers on Wednesday as US treasury yields dropped amid fading expectations for a Fed rate hike. In the wake of the strong NFP report, the probability of a rate hike in September - extracted from the Fed funds futures - currently stand at (only) 26%, while the probability of a move before year end flirts with the 50% threshold, suggesting that the market gave up the idea of tightening in 2016. The monetary policy sensitive 2-Year treasury yields slid to 0.6980%, down 4bps compared to post-NFPs levels. Consequently, the greenback was trading lower across the board, losing as much as 0.60% against the New Zealand dollar and 0.55% against the Japanese yen. The dollar index, a measure of the USD against a basket of currencies, was down 0.40% overnight, reversing completely the gains made on the back of last Friday’s strong NFPs. The US has been struggling to gain positive momentum over the last month and now it seems that a further losses cannot be ruled out as the world’s biggest economy is struggling to convince markets everything is fine. The weak USD will allow riskier currencies to continue appreciating; however central banks across the globe still have some fire power and are determined to prevent further appreciation of their local currency. Competitiveness first!
The New Zealand dollar accelerated in overnight trading as it reached 0.7228 against the US dollar in spite of an expected upcoming rate cut by the RBNZ no later than tomorrow morning. Given the recent USD weakness, the RBNZ will have to release, in addition to a rate cut, an extremely dovish statement if Governor Wheeler wants to bring the Kiwi to levels considered as competitive by the RBNZ. Since Monday, the Kiwi rose as much as 2% against the greenback, erasing completely the losses made on the back of the US jobs report. Ahead of tonight interest rate decision, the risk is definitely on the upside for the Kiwi as a very dovish statement will be required to prevent the Kiwi to resume its rally. NZD/USD moved back below the 0.7182 resistance implied by the 61.8% Fibonacci line on July debasement.
In the equity market, it a day of profit taking as most equity indices are blinking red across the screen. In Asia, mainland Chinese shares edged lower with the Shanghai and Shenzhen Composites falling 0.20% and 0.13% respectively. In Japan the Nikkei was down 0.18%, while in Singapore the SMI edged up 0.03%. Offshore, Taiwan’s Taiwan Weighted was up 0.50%, while in Hong Kong’s Hang Seng edged down 0.08%. European equities futures made no exception and followed the Asian lead in negative territory.
Currency Tech
EUR/USD
R 2: 1.1428
R 1: 1.1234
CURRENT: 1.1140
S 1: 1.0913
S 2: 1.0822
GBP/USD
R 2: 1.3981
R 1: 1.3534
CURRENT: 1.3029
S 1: 1.2851
S 2: 1.2798
USD/JPY
R 2: 107.90
R 1: 102.83
CURRENT: 101.15
S 1: 100.00
S 2: 99.02
USD/CHF
R 2: 1.0328
R 1: 0.9956
CURRENT: 0.9802
S 1: 0.9634
S 2: 0.9522