Forex headlines for July 1, 2014:
- June US ISM manufacturing 55.3 vs 55.9 expected
- ISM’s Holcomb says trend in manufacturing on a ‘good track’
- US auto sales rise to highest pace since 2006
- Markit final June US manufacturing PMI 57.3 vs 57.5 expected
- May US construction spending +0.1% vs +0.5% expected
- US July IBD/TIPP economic optimism 45.6 vs 48.0 expected
- US 10-year yields up 3.6 bps to 2.57%
- S&P 500 hits record, up 13 points to 1973
- AUD leads, JPY lags
The Canadian and Australian dollars along with the pound all hit longer-term highs today but I’ll give top billing to the loonie since it’s Canada Day. USD/CAD continued its relentless fall, breaking below bids at protecting yesterday’s low at 1.0650/45 and down to 1.0631. The pair has now virtually erased the rally from the first three months of the year. I’m a bit skeptical of the move because of the holiday so we’ll see how Toronto reacts when desks restaff tomorrow.
The Australian dollar took out a bigger mark with its rally above 0.9500 for the first time since November. The high so far is 0.9505 but we’re about 10 pips below that so keep an eye on the close. It’s a stretch to point to the RBA minutes as a source of buying because the changes were marginal. Others pointed fingers at the China PMI but it was smack on expectations. The gains were about a market that likes risk and carry and is falling out of love with the US dollar — the technicals also helped with the squeeze above the April high of 0.9461.
But perhaps the most notable move was another rally in the pound. The trend is your friend and buying the break is your best bet. It was the fourth day of gains and continues the rally from the break above 1.70. You can point to the BOE minutes but there wasn’t a great catalyst aside from US dollar weakness.
The overarching theme was US dollar weakness after the ISM manufacturing data was slightly below expectations. The market is dead scared of a weak US economy at the moment and USD-negative headlines are hitting much harder than the opposite.
One currency that couldn’t take advantage was the euro. It kicked up to 1.3700 but could only hang there for a moment and was instantly back to the pre-ISM level of 1.3688. It chopped around there but finishes near the lows of the day at 1.3677. I don’t like look of the late slide in stocks or EUR/USD but we’re talking about a 20-pip range in US trading so it’s not quite something to get the blood pumping.
NZD was hit by headlines from a soft milk auction in a 20 pip drop down to 0.8770 but it was tough to keep the kiwi down with stocks hitting record highs.
