Forex news from the European morning session - 7 August 2019
Headlines:
- US MBA mortgage applications w.e. 2 August +5.3% vs -1.4% prior
- Another day, another record low for German bund yields
- These central bank rate cuts are starting to be contagious
- Germany June industrial production -1.5% vs -0.5% m/m expected
- Markets are expecting the RBA to keep up with the RBNZ at next month's meeting
- Where is the bargain as the global bond market continues to bubble up?
- Is a USD/CNY fix above 7.00 on the cards this week?
Markets:
- JPY leads, NZD lags on the day
- European equities higher; E-minis up 0.3%
- US 10-year yields down 5 bps to 1.65%
- Gold up 1.0% at $1,488.95
- WTI down 0.2% to $53.51
- Bitcoin up 0.1% to $11,651
Cut, cut, cut... That is among the major focus of markets as we saw the RBNZ kick things off with a larger-than-expected rate cut before the RBI followed in similar fashion and then the BOT announced a surprise rate cut as well in their policy decision today.
Markets were initially in a more defensive mood with equities holding lower and bond yields slightly weaker as the PBOC fixed the yuan a whisker away from the 7.00 per dollar threshold, prompting added weakness in the currency.
The yen was the lead gainer and maintained gains throughout the session with USD/JPY hovering around 106.10-30 levels for the most part.
But it was the central bank decisions overseas (India and Thailand) that spurred a bit of a change in sentiment across markets, with equities recovering and bond yields falling further on the day as a result.
US futures pared losses of around 0.5% to be up by 0.3% currently, while Treasury yields sank deeper into negative territory. 10-year yields are now down by more than 5 bps to 1.65% after having been only 2 bps lower near 1.67% at the start of the session.
It did little to shift the dial in the currencies space though, with EUR/USD only slipping from 1.1200 to 1.1180 levels. GBP/USD price action was more choppy as it bounced from 1.2140 to 1.2190 before falling back to 1.2130-40 levels currently.
Meanwhile, the kiwi is still the main laggard after the RBNZ decision with NZD/USD hovering around 0.6400 at the start of the European morning before recovering a little to 0.6430 levels. The aussie is also beaten down but off the lows as markets see higher odds of the RBA cutting rates now in September, in trying to keep up with the RBNZ.
Looking ahead, I'm still not entirely sold by the rebound in equities as I reckon all it takes is just one negative headline to rattle investors yet again. For now, they can take comfort in more central banks around the world easing policy further but I reckon the reprieve will be short-lived as long as trade tensions continue to run wild.
