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USD Index Edges off Highs, Remains Up 0.5%

FOREX
  • Late comments from Philly Fed’s Harker have helped curtail the greenback advance on Tuesday, emphasising that the Fed don’t want to overdo it with tightening. However, the USD remains solidly in the green, with markets taking note of a series of negative sector news for global banks, prompting a flight to quality across the currency complex.
  • Moody's cutting their rating on the US Banking sector was compounded by a fresh Italian windfall tax on banking sector profits, significantly weighing on the EuroStoxx50 Bank Index. Risk sensitive currencies such as AUD, NZD and CAD all had meaningful sell-offs across the European time zone before moderately stabilising throughout US hours.
  • AUDUSD declined as much as 1.15%, briefly trading below 0.6500 for the first time since June 01, before bouncing around 30 pips ahead of the APAC crossover. The greenback advance was most noticeable against Scandi FX in G10, with both the SEK and NOK declining by over 1%.
  • Similar reverberations were sent through to EMFX, with the likes of ZAR and PLN being hit the hardest. Notably, USDZAR has extended its rise in August to around 6%. However, lower yields in the US, buffered by Harker’s remarks have offered some relief for Latin American currencies, which are rebounding into Tuesday’s close.
  • Underlying dollar strength worked in favour of USDCNH (+0.48%), placing the pair briefly above the first upside technical level of 7.2457 - the 76.4% retracement for the July downleg. After disappointing trade figures overnight, the data turns focus to July inflation due Wednesday, with CPI seen dropping 0.4% and PPI at -4.0%. A miss on forecast is sure to reignite speculation of further stimulus.
  • Elsewhere, global markets remain firmly focused on Thursday’s US CPI data for July.
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