A note of caution kept back into markets overnight. Equities wavered and volatility lifted off extreme lows. The S&P500 is currently down 0.2% after paring earlier losses and the VIX fear index showed a pulse for the first time in a couple of weeks. US yields are higher, as oil prices extend their march north.
In currencies, the USD fought back overnight following the towelling it took yesterday after the Fed decision that, in the bigger picture, was fundamentally little changed and certainly not that different to prior expectations. The USD rose against most major currencies overnight, with the DXY index up as much as 1% at one point from its late yesterday lows.
Flows were modest with limited news. It looks to have been a night of profit-taking on USD shorts post-Fed moves, position squaring ahead of US GDP data tonight and risk of month-end volatility.
Some positive US data helped. June’s US trade deficit came in narrower than expected, as exports rose 1.4% and imports fell 0.4% (no doubt helped by the general weakness in the USD over recent months). Meanwhile, inventories at US wholesalers rose 0.6% beating expectations and retailer’s inventories also rose. It all supports Q2 GDP growth calculations. US Q2 GDP data is due overnight with an acceleration to an annualised pace of 2.5% expected from Q1’s 1.4%.
After poking through 1.1770 late yesterday, EUR/USD sank all the way down toward 1.1650 before finding support. The pair opens this morning around 1.1680, down 0.5%.
GBP/USD followed a similar trajectory. The CBI UK retail trade survey was +22 in July, well exceeding market expectations of +10. But it was not enough to offset the USD rise. GBP/USD currently sits around 1.3060, down 0.4%.
USD/JPY rose to around 111.70 from under 110.80 late yesterday but unwound gains as volatility rose. The VIX fear index spiked to around 11.50 before easing back. USD/JPY opens this morning around 111.20.
CHF remains under some downward pressure. CHF sits at the bottom of the leaderboard, despite the whiff of risk aversion. CHF fell another 1.5% against the USD overnight. EUR/CHF rose to its highest level since the SNB abandoned the floor back in 2015. This follows from SNB President Jordan’s comments earlier in the week that the CHF remains ‘significantly overvalued’.
The NZD has held up reasonably well against the revived USD, although still down 0.4% in the session. After testing up toward 0.7560 yesterday, a stronger USD sees NZD/USD back below 0.7500 this morning. News of Fonterra lifting its milk price early forecast yesterday to $6.75 from $6.50 previously had minimal impact on the NZD. While clearly positive news, adding circa $500m more revenue into the NZ economy, it largely confirms the healthy international pricing over recent months. Indicators for next week’s GDT auction are supportive.
NZD/AUD, around 0.9400 this morning, sits smack in the 0.9350 to 0.9450 range seen over the past week. A light local calendar looks no threat to this range today.
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