Robust PMIs Lift Dollar; US Two-Year Bond Yield Surges

Dollar Climbs to 157 Yen; Aussie, Kiwi, EMFX Grind Lower 

Summary:

The Dollar Index (DXY), which gauges the value of the Greenback against a basket of 6 major currencies, lifted to 105.05 (104.90). Robust US PMIs lifted the Dollar. 

US May Services PMI soared to 54.8 from an upward revised 51.3 (50.9 initially). May Manufacturing PMI in the US rose to 50.9 from 50.0 previously, beating forecasts at 50.

Additionally, US Claims for Unemployment benefits eased to 215K from 223K previously, and better than forecasts at 220K. The Federal Reserve’s latest FOMC minutes suggested US interest rates will stay elevated for a longer period. 

The Two-Year US bond rate surged to 4.94% (4.87%). The Ten-Year rate climbed to 4.48% (4.42%). Other global bond yields were up, but to a lesser degree than their US counterpart. 

Against the Japanese Yen, the Greenback soared to 157.19 overnight high before easing to settle at 156.98 (156.75 yesterday). The yield differential between US and Japanese rates widened in favor of the Greenback. Japan’s 10-year JGB yield dipped to 0.99%. 

The Kiwi (NZD/USD) was little changed, at 0.6097 (0.6094) after the RBNZ held interest rates steady. New Zealand’s central bank signaled rate cuts were unlikely due to stubborn inflation. 

The Aussie Dollar (AUD/USD) dipped to 0.6605 from 0.6620. Australia’s 10-year bond yield eased 4 basis points to 4.25% which contrasted markedly with the higher US 10-year rate. 

The robust Greenback pushed the Euro (EUR/USD) and British Pound (GBP/USD) lower. Sterling slipped to 1.2697 (1.2717) while EUR/USD settled at 1.0813 down from 1.0825 yesterday. 

Against the Asian and Emerging Market Currencies, the US Dollar rose modestly. The USD/CNH pair (Dollar-Offshore Chinese Yuan) rallied to 7.2570 (7.2510). The Greenback gained to 1.3517 Singapore Dollars, up from 1.3505 yesterday. 

Other economic data released yesterday saw New Zealand Retail Sales (q/q) climb 0.5%, beating estimates at -0.3% and -1.8% previously. The Eurozone Flash Manufacturing PMI rose 53.9 from 53.2. UK Flash Manufacturing PMI soared to 51.3, beating forecasts at 49.5. 

• USD/JPY – the Dollar rallied to finish at 156.98 Yen from 156.75 yesterday. The Greenback traded to an overnight high at 157.19 before easing. In choppy trade, the overnight low recorded was 156.51.
• AUD/USD – the Aussie Battler eased against the Greenback to 0.6605 from 0.6620. Overnight the AUD/USD pair soared to 0.6653 high while the overnight low recorded was 0.6597. Australia’s Judo Bank May Manufacturing PMI slid to 53.1 from 53.6.
• EUR/USD – the shared currency dipped against the US Dollar to 1.0813 against 1.0825 yesterday. The Euro traded to an overnight low at 1.0805 before steadying. The overnight high recorded for the shared currency was 1.0861.
• GBP/USD – Sterling slid to 1.2697 USD, down slightly from yesterday’s 1.2717. Broad-based US Dollar strength weighed on the British currency. The GBP/USD pair traded to an overnight low at 1.2685 before pushing higher. The overnight high traded was 1.2746.

On the Lookout: 

Welcome to Friday! Today’s economic calendar kicked off with New Zealand’s Trade Balance April Trade Balance which saw a surplus of +NZD 91 million, against a forecast Deficit of -NZD 202 million and -NZD 476 million previously. Japan follows next with its Headline April CPI (y/y f/c 2.3% from 2.7%; m/m f/c 0% from 0.2% - ACY Finlogix), and Japanese April Core CPI (y/y f/c 2.2% from 2.6%). 

The UK follows next with its May Consumer Confidence (f/c -18 from -19 previously), UK May Retail Sales (m/m f/c -0.4% from 0%; y/y f/c -0.2% from 0.8% - ACY Finlogix), UK May Core Retail Sales (m/m f/c -0.6% from -0.3%; y/y f/c -1.1% from 0.4% - ACY Finlogix). Germany releases its Final GDP Growth Rate (q/q f/c 0.2% from -0.5%; y/y f/c -0.2% from -0.2% - ACY Finlogix). 

France follows with its May Business Confidence Indicator (f/c 100 from 100 – ACY Finlogix). Canada kicks off North America with its March Headline Retail Sales (m/m f/c 0% from -0.1% - ACY Finlogix), Canadian March Core Retail Sales (m/m f/c 0.1% from -0.3% - ACY Finlogix). 

The US rounds up today’s data releases with its US April Durable Goods Orders (m/m f/c -0.8% from 2.6% - ACY Finlogix), US April Core DGO (excluding transportation) (m/m f/c 0.1% from 0.2% - ACY Finlogix) and US May Michigan Final Consumer Sentiment (f/c 67.5 from 77.2 – ACY Finlogix).

Trading Perspective: 

The rally in US bond yields lifted the Dollar Index above the 105 level to 105.05 (from 104.90 yesterday). Other global bond rates also rose but to a lesser extent than those of the US. The wider yield differentials in favor of the Greenback gives the currency a fillip and will continue to do so today. Keep monitoring those treasury yields. At the end of the day, every yield tells a story. 

Upcoming economic data releases and a speech from Federal Reserve Governor Christopher Waller could also impact markets. Waller has said that while he does not think further rate increases will be necessary, he will need some convincing before he backs any cuts. 

The US Michigan Consumer Sentiment is forecast to have slumped to 67.5 from 77.2 previously. Watch this number as well. A fall in Michigan Sentiment below 67.5 could trigger Dollar sales. 
Thank God it’s Friday rings loud for all markets today. 

• USD/JPY– the Dollar finished with modest gains to 156.98 Yen (156.75 yesterday). On the day, look for immediate resistance at 157.20 (overnight high traded was 157.19). The next resistance level is found at 157.50 and 157.80. Immediate support can be found at 156.50 (overnight low traded was 156.51). The next support lies at 156.20 and 155.90. Look for more choppy trade in this currency pair, likely between 156.00-158.00. Preference is to buy dips down to 156.00 for another attempt at 160.

• AUD/USD – The Aussie eased modestly to 0.6605 from 0.6620. The Battler found support from a firmer Kiwi after the RBNZ kept rates unchanged. Look for immediate support at 0.6600 followed by 0.6570 today. On the topside, immediate resistance can be found at 0.6630 and 0.6660. Look for consolidation in a likely range today of 0.6580 and 0.6680. It’s Friday today, trade the range.
• EUR/USD – the shared currency dipped against the Greenback to 1.0813 from 1.0825 in quiet trade. Look for immediate support today at 1.0800 (overnight low traded was 1.0805). The next support level can be found at 1.0770. Immediate resistance lies at 1.0830 and 1.0860 (overnight high traded was 1.0861). The next resistance level lies at 1.0890. Look for more choppy trade in a likely range today of 1.0780-1.0880. Prefer to sell Euro on strength.
• GBP/USD – Sterling slipped to 1.2697 from 1.2717 against the broadly firmer US Dollar. On the day, the British Pound has immediate support at 1.2685 (overnight low). The next support level lies at 1.2655. On the topside, immediate resistance can be found at 1.2720, 1.2750 and 1.2780. Look for consolidation in a likely range today between 1.2650-1.2750.

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