Trump Tough Trade Talk Trims Hopes; Dollar Slips, Stocks Fall

Summary: The Antipodeans, Aussie and Kiwi extended their advance against the Dollar after the RBA held rates (0.75%) and policy steady. Elsewhere, President Trump’s tough talk on trade saw uncertainty prevail, with no urgency to conclude an agreement with China. Markets kept a risk-off stance. This enabled the Yen and Swiss Franc to rally against the Greenback, ending as best performers in FX. The Australian Dollar settled to close at 0.6842 after jumping to 3-week highs following the RBA’s rate decision. The US Dollar slumped against the resurgent Yen to finish at 108.60, down 0.41% from 109.00 yesterday. Monday’s dismal US Manufacturing PMI which surprised many and saw the Dollar Index (USD/DXY) taking a 0.45% hit, steadied to close modestly lower at 97.734 (97.884). The Euro steadied to finish little changed at 1.1082 against the broad-based weaker US Dollar. Stocks fell for the 3rd day running. The Dow was down 1.0% to 27,497, while the S&P 500 lost 0.68% to 3,092. (3,122.) Bond yields slumped with the benchmark US 10-year rate down a whopping 11 basis points to 1.72% (1.82% yesterday). Global bond yields followed the US lead although to a lesser extent. Germany’s 10-year Bund yield was 7 basis points lower to -0.35%. in contrast, Australia’s 10-year bond yield was up 10 basis points to 1.19%. Japan’s 10-year JGB yield rose 2 basis points to -0.04%.

Bloomberg Table of 10-Year Government Bond Yields – 04 December 2019

Data released yesterday were mostly second tier and close to forecasts. Australia’s Current Account Surplus grew to AUD 7.9 billion against a forecast of AUD 6.1 billion. Spain’s Unemployment Change in November saw a marked improvement to 20,500 workers from a forecast of 75,200 and previous 97,900. Eurozone PPI rose 0.1% beating forecasts of 0.0%. New Zealand’s Global Dairy Price Index fell to -0.5% from a previous 1.7%.

  • USD/JPY – The Dollar’s reversal against the Yen accelerated following Monday’s dour US Manufacturing PMI report and the market’s risk-off stance. USD/JPY slumped to an overnight and 2-week low at 108.48 before steadying to close at 108.62. Lower US yields also weighed on this currency pair.
  • AUD/USDThe Aussie Battler jumped to an overnight and 3-week high at 0.68622 after the RBA kept its Official Cash Rate at 0.75%. AUD/USD eased to 0.6842 at the New York close as the market’s risk-off stance kept the Battler in check.
  • EUR/USD – The shared currency climbed to an overnight high at 1.10935 before easing to settle at 1.1082 at the NY close, up 0.05% from yesterday’s opening. The Euro traded sideways but kept most of its gains.
  • NZD/USD – The Kiwi maintained its bid bias after finishing as best performing currency yesterday despite a drop in global daily prices and the market’s risk-off stance. NZD/USD closed at 0.6518 in New York, up 0.29% (0.6505 yesterday).

On the Lookout: The Dollar turned lower despite the recent interruptions which are likely to delay any conclusion of a China-US trade deal. The surprise drop in US Manufacturing PMI’s after a run of upbeat data have left the Dollar vulnerable to a downside correction. Data from China, Europe and the rest of the world have steadied, with improvements to expectations from most.  Let’s not forget that the speculative market is currently long of Dollar bets against the Major currencies.
Finally, it’s clear that President Trump is adamant on seeing a weaker US Dollar.
Data released today see Global Services and Non-Manufacturing PMI’s.
New Zealand starts off with its ANZ Commodity Prices. Australia’s AIG Services Index as well as the Commonwealth Bank’s (CBA) Services and Composite PMI’s follow.
Australia’s Q3 GDP (q/q and y/y) is expected to equal Q2’s 0.5% while climb on an annual basis to 1.7% (from 1.4%). A disappointing number could see a set-back on the Aussie. China’s Caixin Services PMI report rounds up Asian data.
Euro area reports start off with Spanish, Italian, French, German and Eurozone Services PMI’s. The UK reports on its Services PMI. US data follow with its Final Services PMI and the ADP (Private Sector) Non-Farms Employment Change which is forecast to climb to 140,000 from the previous 125,000. Keep an eye on this one.
The Bank of Canada is expected to hold its Overnight Rate at 1.75%. The BOC’s rate statement follows. Finally, the US reports on its ISM Non-Manufacturing PMI.

Trading Perspective: The Dollar should continue its downside probe albeit within tight ranges which are being established. While risk appetite remains shaky, the market is still holding on to long USD bets against most IMM currencies. We look at the latest Commitment of Traders report tomorrow.
US Bond yields slumped yesterday and while Global peers followed, the extent of their fall was less.
This has narrowed the yield differential between the Dollar and its Rivals. Lastly President Trump is dead set on seeing a lower Dollar. While his tweets may fall on deaf ears, he is not going to stop until he sees results. The FX market may just give it to him.

  1. EUR/USD – The shared currency traded to a high at 1.10935 with the immediate resistance at 1.1100 intact. Overnight low traded was 1.10659 which should form immediate support (1.1065). The upside correction of the Euro is mostly the result of short covering. We reported last week the net speculative Euro shorts increased to -EUR 62,503 bets, their largest in 4 weeks. Look to buy dips in a likely range today of 1.1065-1.1115.
  2. USD/JPYThe Dollar accelerated its slide against the Yen after President Trump made it clear that he and his administration are in no rush to conclude a trade deal with China. USD/JPY slumped to 108.484 before steadying to 108.62 in late New York. The 11-basis point fall in the US 10-year yield narrowed the differential with Japan’s 10-yaser JGB rate which climbed 2 basis points to -0.04 % (-0.06% yesterday). The Dollar is headed further south against the Yen. Immediate support lies at 108.40 followed by 108.10. Immediate resistance can be found at 108.85 and 109.15 (overnight high traded was 109.207). Look to sell rallies with a likely range today of 108.50-109.00.
IG DAILY FX AUD USD CHART – 04 December 2019
  1. AUD/USD – The Aussie Battler climbed against the Dollar as bearish bets ran for cover after the RBA left interest rates unchanged and kept a steady as she goes policy. AUD/USD jumped to a high at 0.68622 before easing to settle at 0.6842 as risk appetite waned on Trump’s tough trade talk. This time the Aussie maintained its gains and we can expect more of the same. Market positioning remains short of the Australian Dollar. We highlighted last week from a Saxo Bank report the net speculative Aussie short bets climbed 16% to -AUD 47,240 contracts, the biggest since mid-October. Last night Australian 10-year bond yields climbed 10 basis points to 1.19% after the RBA kept rates steady. This contrasted with the 11-basis point drop in the 10-year US bond yield. The yield gap is 0.52 basis points which is the narrowest it has been in some time. Earlier in August this year the gap was 0.7 bp. Immediate resistance lies at 0.6860 followed by 0.6890. Immediate support can be found at 0.6820 followed by 0.6800. Look to buy dips in a likely 0.6835-0.6885 range today.

Happy trading all.