An odd day for FX as the ebullience on Wall Street today was able to hold throughout the session, while the response in FX was not according to the standard script: the Aussie and Kiwi were relatively weak all day long, and weakened even further late in the US session. Is this due to the upcoming Australia employment data tonight or are we looking at large investors pulling out of FX positions that are positively correlated with China due to the fear of an unwind in the Chinese property bubble? Are traders just now waking up to Aussie bearish indicators like the falling Shanghai composite, falling copper prices and falling BHP stock price?
Certainly, divergences like the one we are seeing here between the AUD and risk appetite elsewhere are worth red-flagging. Let's see if this divergence survives tonight's employment report out of Australia. The interest rate support for the Aussie has been eroded somewhat of late, particularly versus the Loonie, as AUDCAD has plummeted in recent days as the market is pricing back in more tightening from the BoC while continuing to price out some of the earlier expectation for the RBA.
Bonds and JPY tiptoe in a range
Elsewhere, bonds were caught in a tight range today as demand was fairly healthy at the US 10-year note auction, if a bit less healthy than previously. Still, with a bid-to-cover just under 3 and a average yield still under the 200-day moving average in the 10-year benchmark, this auction ought to be considered a relative success . USDJPY flopped about, first reversing from high levels before rallying again toward the range high of the last few days. Tomorrow, the Ichimoku cloud level comes in around the low for today at 93.45, so this will be a critical level if the pair ever decides to sell off again. To the upside, 93.55 is the high after last Thursday's meltdown.
Elsewhere, bonds were caught in a tight range today as demand was fairly healthy at the US 10-year note auction, if a bit less healthy than previously. Still, with a bid-to-cover just under 3 and a average yield still under the 200-day moving average in the 10-year benchmark, this auction ought to be considered a relative success . USDJPY flopped about, first reversing from high levels before rallying again toward the range high of the last few days. Tomorrow, the Ichimoku cloud level comes in around the low for today at 93.45, so this will be a critical level if the pair ever decides to sell off again. To the upside, 93.55 is the high after last Thursday's meltdown.
Chart: NZDUSD
NZDUSD finally looking ugly again - surprising that it was able to trade north of 0.7200 again after the firestorm that ripped through markets last week. Note that the pair is closing right on the 200-day moving average it has been trading around for months now. A close down through that average and through the weakly rising trendline could lead to a further significant correction lower.
NZDUSD finally looking ugly again - surprising that it was able to trade north of 0.7200 again after the firestorm that ripped through markets last week. Note that the pair is closing right on the 200-day moving average it has been trading around for months now. A close down through that average and through the weakly rising trendline could lead to a further significant correction lower.
Looking ahead
The Aussie looks a bit nervous here and we would expect large moves on the employment data tonight, regardless of the direction. The weakness confirms our fundamental view of the Aussie here, though we are a bit uncomfortable with that view with US equities closing the day on a generally high note. Still, today's performance from the Aussie looks very weak barring a scenario in which nervous AUD longs are simply getting squeezed in a relatively thin market ahead of important data.
The Aussie looks a bit nervous here and we would expect large moves on the employment data tonight, regardless of the direction. The weakness confirms our fundamental view of the Aussie here, though we are a bit uncomfortable with that view with US equities closing the day on a generally high note. Still, today's performance from the Aussie looks very weak barring a scenario in which nervous AUD longs are simply getting squeezed in a relatively thin market ahead of important data.
Tomorrow sees the last of the week's US treasury auctions as the Treasury is set to auction off $16 billion in 30-year T-bonds. The results may be the event that sees USDJPY either breaking higher or testing lower. after the uncertainty of the last couple of days.
Tomorrow is relatively quiet with UK Trade Balance and US weekly jobless claims on tap, though Bernanke is out participating in a conference that will include a Q&A session.
Stay careful out there.
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