The US Treasury market rally was unable to find additional fuel after Friday’s very weak jobs report and given that weak US data driving an additional flurry of Treasury buying late Friday seemed the proximate cause of the USD ending the week on a sour note, it looks like the consolidation in Treasuries has also eased pressure on the greenback.
AUD and NZD have already effectively rolled over versus the US dollar and USDJPY has pulled away from cycle lows as well on the double impact of still strong risk appetite and the consolidation US yields. The former may continue to fall if risk sentiment rolls over, while the JPY will more likely take the majority of its cue from the US treasury market.
Speaking of risk sentiment, this week has gone off with quite a bang as not only US equities, but global equities are putting in a strong rally led by China’s potent rally of over 1% to start the week.
My general view on the USD is that it will be unable to sustain a sell-off until the Fed actually delivers sufficient easing to impress the market – i.e. proves that it is getting ahead of the curve for now, at least. This would be marked by new highs in US equities, strong equity markets globally, and a period of rising (somewhat gently) US long yields.
Ten Tories are vying for leadership of the Conservative party in the UK, with pro-hard Brexit Boris Johnson supposedly leading the pack ahead of the first vote set to take place this Thursday. He has vowed to cut personal and business taxes, but has largely avoided the spotlight, some argue to avoid making any unfortunate gaffes. The market does not appreciate the general spectacle and uncertainty as sterling has pushed to new lows versus the euro.
Full attention on the CNY charts these days as yesterday saw USDCNY jumping to its highest levels of 2019 briefly before the fixing was set back within the prior range overnight. US President Trump threatened yesterday, in his typical rambling style, to hike tariffs on China immediately if China’s Xi Jinping won’t meet with him at the G20 summit in Osaka near month-end. China has yet to confirm any intent for a Trump-Xi meeting on the sidelines of the summit.
Chart: AUDUSD
AUDUSD wiped out all of Friday’s gains and the fresh attempt at the obviously pivotal 0.7000 level was beaten back. The next test for the pair arrives with Thursday’s Australian jobs data, as the Reserve Bank of Australia has linked its rate cut intentions to the strength of the labour market. But perhaps Trump’s fresh tariff threat has weighed on AUD on the margin here as other factors are AUD-supportive, including a fresh steep rally in iron ore prices.