Market Brief
The USD stabilised against most of the G10 currencies (EUR, CHF and JPY), but extended gains against commodity currencies and emerging markets in general - even though these gains have been very uneven. During the Asian session, EUR/USD treaded water at around 1.1235 in spite of dovish comments from the Fed Governor yesterday. Fed’s Brainard said that “the case to tighten policy preemptively is less compelling”, warning that the job market is not yet at full strength. Accordingly, short-term treasury yields fell slightly with monetary policy sensitive 2-year yields testing 0.75%. On the longer-end, the 10-year stabilised at around 1.66%, while the 30-year consolidated slightly below the 2.40% threshold. Overall, the entire yield has been steepening significantly since the beginning of the month with the spread between the 2-year and the 10-year jumping to 0.90% - the highest level since June this year - from 0.75% in late August. The widening of the term-spread is mostly due to the fall in short-term rates rather than a rise in the longer ones.
Commodity currencies partially reversed yesterday's gains, with the Aussie falling 0.50% to $0.7530 in Sydney and the Kiwi sliding 0.40% to $.0.7325. The Aussie has been caught in a crossfire between global investors that have been chasing higher yields, which push the Aussie to higher ground, and the weak inflationary environment that is increasing pressure on the RBA to further ease. Yesterday, AUD/USD tested a 1-month low at around 0.75 before jumping to 0.7566 amid Brainard’s dovish comments. Even though the Aussie will be subject to upside risk - mostly because of its higher yielding currency status - we believe that in the medium-term the downside potential will weigh more heavily.
In the equity market, Asian equity returns were mixed on Tuesday following the sell-off in Europe and the rally in Wall Street. Japan’s Nikkei was up 0.34%, while in mainland China the CSI 300 was down 0.15%. In Hong Kong, the Hang Seng rose 0.36%, Australian shares were down 0.23% and in Wellington, equities slid 0.42%. Finally, in Europe, equity futures are pointing towards a higher open.
Currency Tech
EUR/USD
R 2: 1.1616
R 1: 1.1428
CURRENT: 1.1222
S 1: 1.1046
S 2: 1.0913
GBP/USD
R 2: 1.5018
R 1: 1.3534
CURRENT: 1.3311
S 1: 1.3024
S 2: 1.2851
USD/JPY
R 2: 107.90
R 1: 104.32
CURRENT: 101.89
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 0.9956
R 1: 0.9885
CURRENT: 0.9730
S 1: 0.9522
S 2: 0.9444