FOREX: Initial Dollar Weakness Reverses as Equities Slump
Jun-09 17:18
- Another round of cautious optimism on a peace deal in Iran prompted some modest weakness for the US dollar early on Tuesday, with the USD index slipping back below 100 to a session low of 99.68. However, this optimism then dissipated and as the major equity benchmarks extended to fresh pullback lows, the DXY edged back to unchanged levels on the session.
- With risk sentiment dented, Scandinavian currencies are the weakest performers across the G10, closely matched by the Australian dollar.
- For AUDUSD, spot levels around 0.7015 represent 8-week lows for the pair. The sharp sell-off on Friday highlighted a clear break of the 50-day EMA (intersecting now around 0.7120), and the break of this average has prompted a deeper retracement. The next downside levels of note are 0.6986, the Apr 13 low and 0.6938, the 76.4% retracement of the Mar 30 - May 6 bull leg.
- Relative underperformance compared to its antipodean counterpart has seen AUDNZD move 0.4% lower on the session. Potentially assisting this theme was a change of call by analysts at National Australia Bank (NAB), who no longer expect the RBA to hike by 25bp in Aug, and believe the next move for the cash rate is likely to be down.
- USDJPY made a fresh post-intervention high of 160.45 today, further narrowing the gap to the pre-intervention highs of 160.72 and placing further pressure on the MoF. The BOJ will consider halting its quarterly reductions in bond buying from April 2027 according to matching overnight sources reports. This would be a dovish move, keeping JGB yields artificially low, which could add to pressure on the yen over the medium-term.
- In emerging markets, the Peruvian sol has surged 3%, extending a sharp turnaround following Sunday’s second round runoff vote. Prediction markets lean heavily towards the market friendly candidate Fujimori prevailing.
- US CPI highlights the data calendar on Wednesday, alongside the BOC decision. Focus then shifts to the ECB decision on Thursday, where the GC is expected to deliver a 25bp hike.
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