With the US holiday, markets were quieter than usual and currency movements were modest. The USD is fairly flat, after its further push higher the previous day.
Emerging market currencies remain out of favour as the USD has probed fresh highs. A number of EM currencies reached a record low, including Turkey, which saw the Lira fall even as the central bank raised interest rates for the first time in three years.
Rate hikes and intervention have become de rigueur as central banks try to contain the selling pressure on their currencies.
Many of these EM countries have USD-denominated debt, so the stronger USD increases their country's debt burden. A stronger USD also acts as a tightening in global financial conditions, possibly reducing future global growth, which EM countries are sensitive to.
The NZD has been pushed down by those same forces, but continues to find strong support in the 0.6750-0.7000 zone. It fell to a low of 0.6972 yesterday afternoon, tested close to that level again last night, but has since recovered to sit just around the 0.70 mark. We still think that a modest recovery can ensue by year-end, due to positive seasonal factors, but this requires the USD to consolidate around current levels rather than continue to push higher.
The AUD found some support around 0.7370 and has pushed up to 0.7410.
Commodity prices have pushed higher over the past couple of weeks, despite USD strength, a reflection of improving global activity indicators, such as the widely watched PMIs, and improved US economic data. Copper, often seen as a bellwether for the global economy, is on track for its biggest monthly gain in a decade and is up 21% so far.
EUR and GBP have traded flat against the USD but the yen has remained under pressure. It has pushed up through 113 and currently trades at 113.40. Traders have been on the wrong side of the trade and continue to buy USD/JPY on any dips.
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