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The US Dollars Remains Resilient Against Its G10 Counterparts

By OFX

The United States Dollar shook off President Trumps Friday tweets in overnight trading to begin its recovery against a number of the major currencies. The US Dollar Index is up 0.28% this morning, as demand for the greenback returned to the market

The Catalyst for the reversal of fortunes, albeit small, was the upbeat data from the Federal Reserve Bank of Chicago which showed the National Activity Index rose to 0.43 in June. However, the good news was significantly counter-balanced by a 0.6% reduction in existing home sales. The excellent start continued for the Greenback, however, as commodity currencies began to depreciate against the USD when China announced it would inject $74b of liquidity into the market, further easing their accommodative monetary policy. The CNY immediately plunged 0.4% which contributed to declines across the board for commodity currencies. The Greenback strengthened further again, as rumors of tweaks at the Bank of Japan to monetary policy reverberated around the market, driving global bond yields higher and increasing demand for the US Dollar. Overall, it was a perfect storm for the United States as sentiment dictated direction for much of the day.

Moving into Tuesday morning a relatively quiet domestic docket for economic releases. Markits Manufacturing and Services PMI figures will be released at 9:45. Followed by the Richmond Fed’s Manufacturing Index at 10 am.

The loonie couldn’t hold onto the Asian session gains, which saw the USDCAD trade as low as 1.3115, and ended up the session 0.20% weaker versus the USD at 1.3172.

The pickup in US yields and broad USD strength saw the loonie reversing gains, and the drop in WTI prices further accentuated the correction.

USDCAD continued to trade it trend channel of 1.3115 /1.3189 range, levels that will be acting as support/resistance in the short-term. There are no Canadian economic releases this week for Canada; therefore, the loonie will trade on the broader market participant sentiment.

The monthly tranche of PMIs has been released this morning with a mixed bag of results is shown. The Eurozone’s purple patch of expansion seen late last year has been replaced with a more modest pace of output of late highlighted by the reduction in PMI figures. German manufacturing for July printed 57.3 beating expectations but some way off the series of >60 readings we saw either side of Christmas. Eurozone Manufacturing as a whole came in at 55.1 ahead of the 54.7 forecast.

The EZ Services number printed 54.4 slightly worse than the 55.0 predicted. This week’s main event from the euro is the ECB Interest Rate decision due on Thursday. No change in policy is all but guaranteed however the market's focus is the timeframe of when the ECB will look to tighten policy. Rates are currently predicted to be raised in the H2 2019, so any hints that it will be sooner will likely see a euro rally. GBP/EUR is at 1.1220.

After the tumultuous Trump tweets, we saw on Friday, and over the weekend it was a relatively quiet start to the week in the FX space from the pound's perspective. GBP/USD has fallen back towards 1.31 over the past 24 hours as the dollar retraces some of its Trump driven losses.

There was no top-tier UK data yesterday however one piece of news to catch sterling holder’s eyes was at a forum in Liverpool where Bank of England Deputy Governor, Ben Broadbent stated he hadn’t decided on whether to vote for a rate hike next week. Broadbent is seen as a dove amongst the Monetary Policy Committee, so it could be seen as a hawkish signal that he’s contemplating voting to raise rates. Chances of a hike are around 80% currently. GBP/USD hovers around 1.31 ahead of another quiet day for sterling.

Having opened a shade above 74c at the start of the Asian session, the Australian Dollar came under selling pressure as Monday kicked into full swing. The AUD/USD touched a low of 0.7373 against the US Dollar, and with little local data, the Aussie remained centered on Chinese currency developments. China’s central bank injected 502 billion Yuan to financial instructions via its one-year medium-term lending facility (MLF) with rates unchanged, a move which was unexpected by the market.

Weighing further on the Aussie was U.S data released by the Federal Reserve Bank of Chicago. The National Activity Index boosted by the upbeat production-related indicators jumped up to 0.43 in June from -0.45 in May a move that pushed the US Dollar index higher. On the commodity front, oil, gold and base metal prices were all a tad lower.

The economic calendar is light ahead of tomorrow’s CPI. We see immediate support at 0.7345 and resistance can be seen at 0.7421

The New Zealand Dollar gave up gains enjoyed into last weeks close through trade on Monday as deeper depreciations in the CNY weighed on the unit. Having touched intraday highs at 0.6825, the NZD gapped lower and fell back through 0.68 to reach 0.6775 and open buying just 0.6784 U. S Cents.

Despite reasonable and improving domestic economic performance New Zealand’s exposure to a global slowdown, in particular, the Chinese value chain has driven the Kiwi to record short positions and been a primary catalyst for the renewed downside. However recent strength across commodity prices has helped firm support on moves toward 12 months low and 0.67.

Attentions remain with ongoing geopolitical developments as the primary driver through the short term with the macroeconomic focus on the Bank of Japan and reports the monetary policy framework may shift come next week’s policy meeting. The impact on global bond markets was significant and may force a short-term correction in direction.