AUD, CAD Outperform, DXY Eases into Fed FOMC Meeting

USD/JPY Soars to 2023 Highs; Yields Up; China Rates Eyed

Summary:

The Australian and Canadian Dollars outperformed, with both gaining modestly against the Greenback. At the New York close, the Aussie (AUD/USD) was at 0.6455 (0.6435), its highest finish in over two weeks.

Against the Canadian Loonie, the Greenback (USD/CAD) tumbled to 1.3445 (1.3485). It was the strongest finish for the Loonie in 6 weeks. Canada’s annual inflation data rose to 4% (3.8% expected).

Minutes from the RBA’s September meeting revealed that additional tightening may be necessary if inflation stays sticky. China’s central bank (PBOC) announces its interest rate decision later today and could impact the Aussie Dollar.

The USD/JPY pair soared to 147.99, fresh 2023 highs, buoyed by elevated US bond yields. Yesterday, the Dollar finished at 147.60 Japanese Yen. Japan’s 10-year JGB yield rose 1 basis point to 0.71%.

Against the Canadian Loonie, the Greenback (USD/CAD) tumbled to 1.3445 (1.3485). It was the strongest finish for the Loonie in 6 weeks. Canada’s annual inflation data rose to 4% (3.8% expected).

The Dollar Index (USD/DXY), which measures the value of the Greenback against 6 major dipped to 105.15 (105.35). The Fed is expected to keep interest rates steady at its meeting tomorrow.

The Euro (EUR/USD) was little changed at 1.0680 (1.0685). Sterling (GBP/USD) edged modestly higher to 1.2394 from 1.2382 in subdued trade. The UK releases its August inflation data today.

Global bond yields rose. The US 10-year Treasury yield climbed 6 basis points to 4.36%. Germany’s 10-year Bund rate rose to 2.73% from 2.70% yesterday. Australia’s 10-year yield dipped to 4.16% from 4.18%. Japan’s 10-year JGB yield edged up to 0.71% (0.70%).

Global stocks slipped. The DOW lost 0.35% to 34,527 against yesterday’s 34,662. The S&P 500 settled edged lower to 4,450 from 4,452. Australia’s ASX 200 lost 0.37% to 7,183 (7,210 yesterday).

Other economic data released yesterday saw US Housing Starts fall in August to 1.28 million units, below forecasts of 1.44 million. It was the lowest read since June 2020. US August Building Permits however, climbed to 1.54 million against a previous 1.44 million, beating estimates at 1.44 million.

• AUD/USD – The Aussie Dollar climbed to 0.6455 from 0.6435 yesterday. It was the Battler’s highest finish in over two weeks. Overnight, the AUD/USD pair soared to a 0.6474 peak before easing. The overnight low traded was at 0.6428.
• USD/CAD – Against the Canadian Loonie, the Greenback tumbled to 1.3445 against 1.3485 yesterday. The USD/CAD pair plummeted to an overnight low at 1.3373 in choppy trade. The overnight high recorded was 1.3488.
• USD/JPY – The Greenback rallied to 147.99, overnight and fresh 2023 highs before settling at 147.85 (147.60 yesterday). The rise in the US 10-year bond yield to 4.36% (4.30% yesterday) boosted the USD/JPY pair. The overnight low recorded was 147.51. The Bank of Japan meets on rates Friday.
• EUR/USD – The shared currency dipped against the US Dollar to 1.0680 in late New York from yesterday’s 1.0685. Overnight the Euro rallied to 1.0718 highs before easing. In choppy trade, the overnight low recorded was 1.0675.

On the Lookout:

Today’s economic calendar is a busy one and kicked off earlier with New Zealand’s GDT Milk Price Index, up 4.6% from 2.7% previously. The Kiwi (NZD/USD) edged up to 0.5950 from its New York close at 0.5935. New Zealand releases its Current Account (f/c -NZD 4.55 billion from -NZD 5.22 billion).

Japan follows with its August Trade Balance (f/c – JPY 659.1 billion from – JPY 78.7 billion – ACY Finlogix).

Australia follows with its Westpac Bank August Leading Index (m/m f/c -0.1% from 0.0% - ACY Finlogix). China follows with its PBOC (People’s Bank of China) interest rate decision. The 1-year Prime Loan Rate is forecast unchanged at 3.45%. China’s 5-year Prime Loan Rate is forecast unchanged as well, at 4.2% (ACY Finlogix).

Germany starts off Europe with its German August PPI (m/m f/c 0.2% from -1.1%; y/y f/c -12.6% from -6% - ACY Finlogix).

The UK follows with its August Inflation Rate (m/m f/c 0.7% from -0.4%; y/y f/c 7% from 6.8% - ACY Finlogix); UK August Core Inflation Rate (m/m f/c 0.6% from 0.3%; y/y f/c 6.8% from 6.9% - ACY Finlogix). The UK also releases its August Retail Price Index (m/m f/c 0.8% from -0.6%; y/y f/c 9.3% from 9.0%), UK August PPI Input (m/m f/c 0.2% from -0.4% - ACY Finlogix; y/y f/c -2.7% from -3.3%0, UK August PPI Output (m/m f/c 0.1% from 0.1%; y/y f/c -0.6% from -0.8% - ACY Finlogix).

Switzerland releases its SECO (State Secretariat for Economic Affairs) Economic Forecasts.

Trading Perspective:

Heading into the US Federal Reserve’s FOMC meeting, markets are expecting the US central bank to keep rates unchanged. The focus will be on the Fed’s economic forecasts and the Fed Funds rate projections. The Fed’s dot plot, which reveals the thinking of individual Fed members on where they think interest rates are going, will be closely scrutinized.  We can expect FX to consolidate within their recent ranges until then, albeit in choppy conditions.

• USD/JPY – The Dollar continued to make modest gains against the Japanese Yen, settling at 147.85 (147.60 yesterday). Immediate resistance lies at 148.00. The next resistance level is found at 148.30. On the downside, immediate support can be found at 147.50 followed by 147.20 and 146.90. Look for consolidation in a likely range today of 146.80-147.80.
• AUD/USD – The Aussie Battler held its own against the Greenback, edging higher to 0.6455 from 0.6435 yesterday. Immediate resistance today lies at 0.6475 (overnight high traded was 0.6473). The next resistance level lies at 0.6500 followed by 0.6530. Immediate support can be found at 0.6420 (overnight low traded was 0.6427). The next support level lies at 0.6390. Look for consolidation today, likely between 0.6410-0.6510. Trade the range.

(Source: Finlogix.com)

• EUR/USD – The Euro settled at 1.0680 in late New York overnight. Immediate resistance for the shared currency is found at 1.0720 (overnight high). The next resistance level lies at 1.0750. On the downside, look for immediate support at 1.0670 (overnight low traded was 1.0675). The next support level is found at 1.0640 and 1.0610. Look for the Euro to trade in a likely range today of 1.0660-1.0760.
• GBP/USD – The British Pound edged higher against the Greenback, settling at 1.2394 (1.2382). On the day, look for immediate resistance at 1.2430 (overnight high traded was 1.2425). The next resistance level is found at 1.2450 and 1.2480. Immediate support lies at 1.2370 (overnight low) followed by 1.2340. Look for Sterling to trade in a likely range today of 1.2350 to 1.2450.

Happy trading all, have a top Wednesday ahead.

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