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AUD Extends Intra-Day Decline To 1.6%, USD Index Testing Resistance

FOREX
  • The US dollar advance has settled in late Tuesday trade with the USD index (+0.45%) around 10 pips off session highs as we approach the APAC crossover with the 100- and 50-dma resistance levels in close proximity, intersecting at 102.39 and 102.49 respectively. Alongside higher US yields and a steeper curve, there greenback strength has been broad based, rising against all others in G10 and showing a particular outperformance against the emerging market basket.
  • The Australian dollar remains the weakest of the majors, declining 1.6% following the August RBA meeting. Importantly it appears that the RBA’s forecasts were broadly unchanged from May, suggesting that there will need to be an increase in upside inflation risks from here for rates to rise further. Combining this with the negative sentiment across equity markets on Tuesday has resulted in a sharp reversal lower for the AUDUSD. Attention is firmly on the next key support at 0.6596, the Jun 29 low.
  • Despite a very brief dip on the US ISM data, USDJPY has maintained a steady trajectory higher on Tuesday and continues to eat into the sharp decline from 145.00 seen in early July. Today’s price action strengthens current bullish conditions and signals scope for a continuation higher. This has opened 144.20, the Jul 7 high, and key resistance at 145.07, the Jun 30 high.
  • CNH slipped overnight on the poorer-than-expected Caixin PMI release, which unexpectedly signalled contraction of 49.2 against 50.1 forecast. New home sales data were also a soft spot, with the value of new home sales down over 33% on the year. USDCNH is still hugging daily highs, with spot having earlier broke above horizontal congestion resistance around 7.1774-78. Today's move higher has also topped the 50-dma of 7.1714 and a close above this mark today would be a bullish development.
  • Negative sentiment also weighed heavily on some emerging market currencies with ZAR (-2.4%), PLN (-1.2%), BRL (-1.4%) and COP (-1.6%) all feeling the pinch.
  • Wednesday will bring New Zealand employment figures as well as US ADP with the market now focusing on Thursday’s BOE decision and Friday’s release of US non-farm payrolls.
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