Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
All eyes on USD/JPY as shares reverses lower
The US dollar was stronger for a second day – rebounding from this week’s six-month lows – as the overnight price action saw sharemarkets give up recent gains.
The US’s S&P 500 was up as much as 1.7% while the tech-focused Nasdaq climbed more than 2.0% before both reversed to end lower. The S&P 500 fell 0.8% while the Nasdaq dropped 1.2%.
In FX markets, early gains were also eroded, with the AUD/USD and NZD/USD both reaching two-week highs overnight before quickly reversing lower.
Global markets appear vulnerable after Monday’s action saw big losses in major markets with the Japanese Nikkei, most notably, losing 10.2% in its biggest one-day loss since 1987. Overnight, worries about a lack of demand for US debt in a scheduled US Treasury auction hit sentiment and triggered a mid-session reversal.
In Asia, the focus remains the key USD/JPY pair as a barometer of risk sentiment. Yesterday, the USD/JPY gained 1.6% but the pair has already fallen 0.6% in early Tokyo trading today.
GBP weakening after BoE
The GBP has been notably lower this week with the GBP/USD at one-month lows and AUD/GBP at two-week highs. The GBP’s losses follow last week’s Bank of England rate cut.
Looking ahead to upcoming house price data, June saw a sideways shift in the price balance, which stayed at -17 and indicated a damp housing market.
Not as quickly as in May, but still declining are new buyer inquiries, sales, and instructions to sell. Because of the high mortgage interest rates, we anticipate that the housing market will continue to be weak; however, stronger economic fundamentals should avert a more severe decline.
Technically, the GBP/USD pair is weaker after triggering momentum divergence sell signal as turned from the 1.30 strong resistance zone.
INR at all-time lows ahead of RBI policy meeting
At the August meeting, we anticipate that the Reserve Bank of India will vote 4–2 to maintain the policy rate and stance, with external members Dr. Ashima Goyal and Prof. Jayanth Varma probably voting against it once more.
The final meeting of the three external members of the MPC will take place in August. We anticipate that the RBI will continue to issue its hawkish commentary, stressing the risks that food prices pose to inflation, projecting growth with optimism, urging banks to adjust their credit-deposit ratios, and emphasizing that the RBI’s primary focus is headline inflation rather than core.
For FY25, we continue to base our projections on 75 basis points of rate cuts beginning in October due to low underlying inflation, high real rates, and weaker demand.
USD recovers for second day
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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