Summary: President Trump announced fresh taxes on Chinese goods of 10% on another USD 300 billion from September 1 via his Twitter account. The yield on the benchmark US 10-year bond dived to 1.88% its lowest level since 2016. Yesterday, US yields were already pressured after the Federal Reserve trimmed interest rates for the first time since 2008 by 0.25%. The move was widely expected with many looking for a bigger cut (0.5%) while 2 FOMC members voted against a rate cut. The US Dollar rallied instead of sliding. The Dollar Index, a gauge of its value against a basket of foreign currencies, rebounded to a 26-month high at 98.932.
Following Trump’s tariff announcement, the USD/DXY dipped 0.14% to 98.374. The Yen outperformed on the slide in US bond yields and the market’s risk-off stance. USD/JPY plummeted 1.4% to 107.40 from 109.29. The renewed trade war concerns ahead of an RBA rate meeting next week plunged the Australian Dollar 0.65% to 0.6804 at the New York close, a 7-month low. The Euro was little changed, up 0.08% to 1.1085. Sterling, meantime, continued its slide, slipping 0.25% to 1.2125 after the Bank of England kept rates unchanged but cut growth forecasts on renewed worries of a no-deal Brexit.
China’s Caixin Manufacturing PMI climbed to 49.9 from a forecast of 49.6. The US ISM Manufacturing PMI dropped to 51.2 against expectations of 52.0 while Construction Spending underwhelmed, falling 1.3% against a forecast rise of 0.5%.
Wall Street stocks fell. The DOW finished down 0.98% to 26, 550 while the S&P was 0.83% lower to 2,950. Brent Crude Oil prices slumped 5.5% at the close to US$ 60.97.
- USD/DXY – The Dollar Index slipped 0.14% to 98.374 after trading to a fresh 26-month high at 98.932 on Thursday.
- EUR/USD – the Euro finished in New York at 1.1085 after dropping to a low at 1.10268 following the Fed’s 0.25% rate cut on Thursday. Many had expected a deeper trim of 0.5% from the US central bank. The drop in US bond yields was not matched by those in Europe which lifted the Single currency off its lows.
- USD/JPY – the Dollar plummeted against the Japanese currency to 107.257 overnight and July 19 lows before steadying to 107.46 in early Sydney. The fall in the US 10-year yield to 1.90% from 2.02% weighed on the Greenback.
- AUD/USD – The Australian Dollar slumped to an overnight low at 0.67957 following Trump’s trade announcements before bouncing to 0.6803 at the close.
On the Lookout: The fresh tariff announcement from President Trump was due to little signs of a breakthrough in the latest round of bilateral talks with the Chinese government. Stocks had rebounded after the Fed-induced sell-off on Thursday following a less than aggressive rate reduction. The trade news has overshadowed tonight’s US Payrolls report where non-farms job gains are forecast to moderate in July to 165,000 (median expectations) from May 240,000. Unemployment is forecast to have ticked lower to 3.6% from 3.7% with July Wages expected steady at 0.2%.
The latest tariffs on China announced by Trump will not bode well for the economy, affecting US industries and the consumer. Nike and Apple stocks plunged. US bond yields, already at their lowest levels since 2016, are likely to fall further.
Todays reports sees Australian Retail Sales (July), PPI (Q2). Euro-area and Eurozone Final Manufacturing PMI’s follow. Canada reports on its Trade Balance. The US Employment Report follow with Non-Farms Payrolls, Unemployment and Waged data for July. Revised University of Michigan Consumer Sentiment rounds up today’s reports.
Trading Perspective: The plunge in US yields will was not matched by it’s global rivals. Germany’s 10-year Bund yield was down 1 basis point to -0.45%. Japanese 10-year JGB yield climbed 2 basis points to -0.14%. Australia’s 10-year rates were also up by 2 basis points to 1.21%. This narrowing of rate differentials will see further broad-based US Dollar weakness.
Let’s not forget the US Payrolls report tonight. Anything less than the +165,000 NFP Employment gain expected by analysts will weigh on the Dollar. An NFP gain of +130,000 to +150,000 will see fresh US Dollar selling. A Payrolls gain of +200,000 or more will lift the US Dollar.
- USD/DXY – The Dollar Index retreated following it’s Fed-induced rally to 26-month highs at 98.932 to close at 98.374, down 0.14%. US bond yields are at their lows since late 2016. The Dollar Index was closer to 95 in 2016. Expect further downward pressure on the USD/DXY with immediate support found at 98.00 followed by 97.80. Immediate resistance can be found at 98.50 and 98.80. Look to sell rallies with a likely 98.20-50 range today.
- USD/JPY – the Dollar plunged against the Yen from 109.20 to 107.27 in a matter of minutes following Trump’s tariff tweet. US bond yields slumped with the benchmark 10-year rate falling to 1.88% before steadying to finish at 1.90%. USD/JPY rebounded to 107.50 before settling currently at 107.40. Expect Japanese corporate buying support to emerge near the overnight lows of 107.25 which is immediate support. The next support lies at 107.00 and 106.70. Immediate resistance can be found at 107.60 and 107.80. Look to trade a likely range today of 107.25-107.65.
- EUR/USD – The Euro found a base against the generally weaker US Dollar at 1.10268 which was the low following the Fed rate cut of 0.25 basis points. EUR/USD traded to a high of 1.10959. EUR/USD has immediate resistance at 1.1100 followed by 1.1030. Immediate support lies at 1.1070 and 1.1050. Look to trade a likely range today of 1.1075-1.1125. Prefer to buy dips.
- AUD/USD – The Australian Dollar slumped against the Greenback due to renewed trade war between the US and China. The Aussie Battler also lost ground on the crosses, falling against other rivals, including the Yen, Euro and New Zealand Dollar. AUD/USD fell to 0.6795 overnight lows before settling at 0.6805. Immediate support can be found at 0.6795 followed by 0.6765. Immediate resistance can be found at 0.6835 followed by 0.6865. Australian Retail Sales and Q2 PPI reports are due today and gains for both will see less chances for an RBA rate decrease at their meeting next week (Tuesday, 6 August). The Aussie Battler will soar from short covering. Look to buy the Aussie Battler with a likely range today of 0.6795-0.6855. Prefer to buy dips.
Happy Friday and trading all.