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Higher Yields Fuel USD Rebound

FOREX
  • The greenback started the European session generally firmer, but faded across the morning before a run higher for US yields helped underpin the currency and stage a solid bounce through the London close and further into the US session with 10Y yields setting fresh highs since early March. That theme continued with the release of the FOMC minutes, with the USD index extending to new session highs after only the briefest of dips on the release.
  • The firming USD was more notable against high beta currencies, helping tip AUD/USD back through the 200-, 100- and 50-dmas all touched on Wednesday. Prices are now chewing through the corrective bounce off 0.6596, which marks a key level for any further breakout lower.
  • AUD/USD options markets were also among the few seeing above-average volumes, largely due to solid demand for downside hedges. Local media also continues to speculate on the identity of the next RBA governor after Lowe's term expires in September. An announcement is expected within two weeks, and current Treasury Secretary Kennedy is among the frontrunners, according to reports.
  • USD/CNH traded firmer, bucking the trend observed since the beginning of the week. The moves come despite more pressure on large commercial banks to trim their rates on USD deposit facilities, with local media also stressing the availability of tools to ensure FX stability. Nonetheless, USD/CNH traded back above 7.26, narrowing the gap with the first topside level of 7.2857.
  • Late comments from NY Fed’s Williams aside, focus for the Thursday session initially turns to Australian trade balance data, and German factory orders ahead of a slew of US releases: ADP Employment Change, ISM Services, JOLTS and weekly jobless claims are all on the docket. Fed's Logan and ECB's Nagel are also set to make appearances.
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