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A tale of two halves - the ebb and flow of the USD

Chris Weston
Head of Research
Jul 30, 2021
There’s quite a bit catching the eye but it seems a tale of two halves.

With blanket USD sellers through US trade, reversing to a degree today to broad USD strength here in Asia – helped by S&P 500 and NAS100 futures attracting good sellers – perhaps largely down to a negative turn in Chinese equities and Amazon getting slammed in the aftermarket.

AUDUSD pushed above 74c, not because of a strong AUD, it was a full USD play and we’re seeing better AUD sellers playing out now. USDCHF is in freefall and rallies will be sold in this run. Yesterday’s Fed meeting was a low vol affair, but we’ve seen some moves in interest rate markets, with ‘lift-off’ (i.e. when the Fed start hiking) moved to late Q1 23, from what was end-2022.

Naturally, we can’t be too cute with hold periods in FX positions and with next week’s event risk in our sights, being short USD through this period has its challenges – ISM manufacturing (Tuesday 00:00 AEST) and US payrolls being the two standouts for USD risk – with the consensus for payrolls building to a punchy 925k headlines jobs, while the unemployment rate is expected to pull down to 5.6% (currently 5.9%) and wages at 3.9% - a number north of 1m jobs should meet the Fed’s “substantial progress” litmus test and open up some re-pricing in rates and has many questioning if US 10YR Treasury at 1.25% is too low. As mentioned yesterday, a close through 1.17% opens the 1% barrier.

For those wanting to take the USD out of the equation, AUDNZD is pushing its range low at 1.0540, and a break here opens 1.0500 and possibly even the December swing low of 1.0418. EURAUD is eyeing a further push higher, while GBPAUD tested 1.89 before finding supply. I like GBPAUD higher still as I don’t think a delay to the RBA’s proposed plan to taper its bond purchase program is fully discounted, and there is growing talk it will be unveiled in next week’s RBA meeting.


(Source: Tradingview)

The BoE meet next week too, and there is a somewhat hawkish feel to this meeting, and this has caused the yield discount that UK 5yr bond wears to Aussie 5yr bonds from -56bp to -30bp. There's a growing view that the BoE hike in late 2022, which shows an ever-widening divergence in policy settings between the BoE and RBA.

Gold has been a benefactor of the recent USD weakness and fall in real rates, and as detailed in the Gold weekly video here, yesterday it feels like there's certainly some catch-up with US real rates. Maybe real rates reverse higher, but it will need a hot NFP to promote this and let’s assume that around 900k jobs are discounted then over 1m might cause USD shorts/gold longs to cover. I was looking for moves into 1840 for mean reversion shorts in Gold and would certainly be looking at stop placement if long and price moved through here.

In equity land, Robinhood caught the attention of clients with shares closing -8.4%, which may surprise some who thought it may absolutely crater – however, it is still the worst showing on the first day of listing for a mega listing. One to watch, but one thing is clear, this stock divide’s opinion like few others.

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