FX Update: USD pokes around, in search of catalysts

Volatility remains low across currencies, though yesterday did provide a few diversions. First, stories emerged yesterday – Eunice Yoon of CNBC being one – claiming Chinese sources were pessimistic on the trade deal outlook, given their prior belief that the US side was ready to roll back tariffs, which the White House then denied. This news saw some minor risk-off, JPY firming type behavior but failed to keep a lid on equities. Then later it emerged that Powell and Trump met at the White House, with Trump claiming that he protested the Fed’s high policy rate “relative to the interest rates of other competitor countries.” And adding that the rate “should be lower than all others (we are the U.S.). Too strong a Dollar hurting manufacturers & growth!” Whatever USD weakness this may have generated has mostly faded

More noise from Trump’s own administration in support of Hong Kong protestors' demand yesterday, as well as from Trump’s own party in the Senate. Self-designated point man Marco Rubio is making a considerable fuss on Hong Kong and Senate majority leader McConnell specifically called on Trump to speak up on the Hong Kong issue. If Trump does speak out it would likely spook the market on concerns that the US-China relationship, trade-deal-wise and in general, would only deteriorate.

Little to get excited about technically here, but do note the well defined technical levels in EURUSD and AUDUSD (1.1000 and 0.6770, respectively) as clear-cut levels that suggest the USD is not for turning lower if these are taken out.

Also note that CAD could be in for a bit more tactical volatility in coming days on today’s data points and the Bank of Canada’s Wilkins out speaking, but especially as Bank of Canada governor Poloz will be out Thursday with a “fireside chat”, suggesting a long and transparent musing on the Bank’s stance that could send interesting signals on how the Bank sees its current, DM-world highest policy rate and where it’s focus lies in determining the path from here.

Chart: AUDJPY
AUDUSD and AUDJPY are in rather similar boats, but both have made a turn lower that has rejected the prior top. Given that AUDJPY is traditionally a barometer for risk appetite, it’s rather interesting that it has failed to sustain the former rally as global equities are in a veritable melt-up. Part of that is no doubt down to the RBA crushing its policy rate lower over the last year, but also as prices for key export commodities like iron ore have suffered over the last few months. From here, any stumble in the trade-deal narrative and further concerns of weak global growth or a correction in risk appetite could weigh doubly on this pair, opening up further downside risks.