RBNZ Joins the Queue, while Yuan’s Advance Continues

Today’s Highlights

• •    The US dollar continues to trade in narrow ranges against the most of the major currencies as the consolidative phase continues.
• •    The notable exception is the Antipodean currencies.  The Reserve Bank of New Zealand projects its first hike in H2 22.  Ideas that this hints that the RBA may pullback from its emergency stimulus in July help dragged the Aussie up with the Kiwi.
• •    Despite some ideas that the PBOC was protesting CNY strength yesterday, today the yuan extended its gains and rose to a new three-year high against the dollar. 
• •    The MSCI Asia Pacific and Europe’s Dow Jones Stoxx 600 are extending gains for the fifth consecutive session.
• •    Usage of the Fed’s reverse repo facility surged to $433 bln yesterday, more than a 10% rise from Monday.  These are unprecedented sums outside of rare quarter-end pressures. 
• •    US sells $26 bln 2-year floating rate notes and $61 bln five-year notes today, ahead of tomorrow’s sale of $62 bln seven-year notes.

The decline in US rates and the doves at the ECB pushing back against the need to reduce bond purchases next month have seen European bond yields unwind most of this month’s gain.

The inability of US shares to hold on to early gains yesterday did not deter the Asia Pacific and European equities from trading higher. Only Australian and South Korean markets did not participate in the MSCI Asia Pacific Index’s fifth consecutive advance today.  Europe’s Dow Jones Stoxx 600 is also ending higher for the fifth session. US future indices are around 0.25%.

The US 10-year is holding around 1.56% while European yields are 2-4 bp lower, and in Dutch 10-year yields have returned to negative territory.

The Reserve Bank of New Zealand was more explicitly hawkish than expected, and its 10-year bond yield jumped eight basis points and sent the currency 1%+ higher. While it appears to help drag up the Australian dollar, the greenback is mostly steady to a little firmer against the major currencies. Emerging market currencies are mixed. The freely accessible ones, including South Africa, Turkey, and Mexico, are firmer, but Eastern Europe’s currencies, Czech, Poland, and Hungary, leading the downside. The combination is leaving the JP Morgan Emerging Market Currency Index little changed.  With little protest, the Chinese yuan is trading at new three-year highs.

While industrial commodities, like iron ore and steel rebar, are trading lower, gold has pushed above $1900 for the first time since January. It has only recorded losses in three sessions this month.  July WTI is in a narrow range, hovering around $66 and trying to extend its advance for the fourth consecutive session.  

Marc Chandler

Managing Director
Bannockburn Global Forex
www.bannockburnglobal.com