Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie, kiwi at three-month lows
Global markets continued to fall sharply overnight as the rout in technology stocks continued.
The tech-focused Nasdaq index tried to recover in early trading overnight but ended the session down 0.9%. The S&P 500 fell 0.5% but the larger, more traditional stocks in the Dow Jones index gained 0.2%.
In FX markets, the Aussie and kiwi remained the hardest hit with more big losses yesterday.
The AUD/USD fell 0.7% as it hit the lowest level since 1 May.
The NZD/USD fell 0.8% as it hit three-month lows.
In Asia, FX markets have been dominated by the meltdown in USD/JPY. The USD/JPY’s moves this year were closely tied to tech stocks – the pair had been the focus of the speculative “carry trade”. The pair had gained more than 15% so far this year but the reversal in sentiment this month has seen the USD/JPY down as much as 6.1% in July although a late recovery caused the pair to close flat. Tokyo CPI, due at 9.30am AEST, might set the scene for today’s action.
Elsewhere, the USD/CNH was down sharply, losing 0.5%, as the pair followed the USD/JPY lower.
Singapore dollar steady with MAS likely to maintain policy stance
Around the region, today’s focus is on today’s Monetary Authority of Singapore (MAS) meeting. We expect the MAS will not adjust its foreign exchange policy.
The MAS’s remarks in its annual report, which maintained its core inflation projection range of 2.5–3.5% for 2024 and mostly unaltered inflation assessment, are probably supportive of this.
As previously mentioned, a better GDP forecast may result in sticky core inflation, which would justify maintaining the current FX policy stance.
Since that disinflation is progressing, we anticipate that MAS will shift to easing in October. SGD appears to be in an appreciating trend with next USDSGD support level at the 1.3300 handle.
US PCE key for Fed – and markets
Later tonight, all eyes will be on the US personal consumption and expenditure report. The PCE report is the Federal Reserve’s preferred measure of inflation and will be critical ahead of next week’s Fed decision.
The market is looking for the headline annual number to fall from 2.6% to 2.4% while the core number is forecast to fall from 2.6% to 2.5%.
A higher-than-expected PCE number could unsettle markets further and drive more losses in the AUD/USD, NZD/USD and USD/JPY (amongst others).
Financial markets see an 8% chance of a Fed cut next week but a 25bps cut is fully priced in for the September meeting.
Tech sell-off drives APAC FX losses
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 22 – 27 July
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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