FX Daily: See-saw markets, wait-and-see mode


DXY in a 92.3-92.9 range, AUD inside 0.73-0.74.
Philip Wee16 Sep 2021
    Photo credit: Unsplash Photo


    DXY ended the overnight session at 92.5, trapped within a tight range between 92.3 and 92.9 since 8 September. The US 10-year treasury yield touched 1.26% twice during the past two sessions but gravitated back towards 1.30%. Wall Street has been choppy, up on Monday, down on Tuesday and up again on Wednesday. Sentiment is caught between stock market bears looking for a correction in September-October and bond market bears who see the Fed tapering asset purchases before end of the year. The deadlock is likely to persist into next week’s FOMC meeting on 22 September. Just as US manufacturing data lifted sentiment yesterday, August retail sales (-0.7% mom consensus vs -1.1% previous) could dampen the mood today.

     

    Australia’s unemployment rate matters to AUD today. Consensus expects the Delta-variant to lift the jobless rate to 5.0% in August from 4.6% in July. The increase was flagged during Reserve Bank of Australia Governor Philip Lowe’s speech on Tuesday. Dr Lowe confirmed that interest rates will not rise until 2024 unless wage growth returns above 3% and sustain inflation in its 2% to 3% target range. He reckoned that the government was better placed than the central bank to address the structural tax issues other than low interest rates fuelling the hot property sector.

     

    AUD is back inside its 0.73-0.74 range seen between mid-July and mid-August with a downside bias. As per CFTC data, speculators first turned net short AUD in June which they accumulated aggressively after the Australia-US 10-year bond yield differential turned negative in July. AUD’s bounce from 0.71 towards 0.75 between 20 August and 3 September was considered a relief rally fuelled by the narrowing yield differential to -5 bps from -18 bps. As things stand, the differential is likely to stay negative.







    Philip Wee

    Senior FX Strategist - G3 & Asia
    philipwee@dbs.com


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