Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist\
Global markets recover, led by Nikkei
The US dollar recovered from six-month lows yesterday as a monster rally in the Japanese Nikkei index saw a semblance of calm return to markets.
The day after the Nikkei’s largest one-day loss since 1987, the Japanese index saw its best day since 2008 as it tacked on a massive 10.2%. Of course, heightened volatility, regardless of the direction, might still spark fears in investors.
With equity sentiment broader better across the world – the US’s S%P 500 gained 1.0% overnight while the Nasdaq also climbed 1.0% – the US dollar also recovered after hitting six-month lows on Friday. The USD was helped by a rebound in USD/JPY.
The USD/SGD, up 0.1%, and USD/CNH, up 0.4%, also gained.
Away from the broader ructions across markets, the focus in Australia was on yesterday’s Reserve Bank of Australia decision, with the RBA signaling it doesn’t expect a pre-Christmas rate cut – inflation remains too elevated. The AUD/USD gained 0.3%.
In NZ, the NZD/USD gained 0.3%, with all eyes on today’s employment reading at 10.45am NZST (8.45am AEST).
US data key for greenback
The USD’s move to six-month lows has been partly driven by poor economic data that’s driven key US bond yields lower – both the 2-year and 10-year bond yield are now below 4.00%.
Looking forward, preliminary July Manheim wholesale used car prices unexpectedly increased by 1.8% month-over-month in the first half of June following five months of declines in February and June.
Nonetheless, it’s plausible that these growth projections were influenced by cyberattacks within the automotive industry. We believe that the tight credit conditions for the auto industry will continue to drive down used car prices, outweighing the upward pressure from a decline in the supply of off-lease cars.
The US dollar can rebound further after recent losses, potentially due to the uncertainty surrounding the US economy’s cyclical backlash as well as the potential for trade conflicts resulting from the US elections.
CNH to be driven China trade
The Chinese yuan was one of the largest beneficiaries from the USD’s recent weakness with the USD/CNH plunging to one-year lows on Monday. The pair later recovered.
In today’s Chinese trade data, export growth is predicted to accelerate to 9.7% y-o-y in July from 8.6% in June as a result of strong external demand. Because of the much lower base, we anticipate that import growth will pick up to 2.7% y-o-y in July from -2.3% in June.
Domestic demand ought to have stayed modest.
Given the lack of a new support package following the Chinese government’s recent policy-planning plenum, there is no indication that the Chinese yuan’s fundamentals will improve.
USD rebounds from lows
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 5 – 9 August
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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