Australian Dollar/U.S. Dollar Futures Market News and Commentary
Dollar Index Climbs to a 2-Week High on Weakness in EUR/USD and Strength in USD/JPY
The dollar index (DXY00) on Friday rose +0.026 (+0.03%). Sep euro-fx futures (E6U9) closed down -0.0011 (-0.09%), and EUR/USD (^EURUSD) fell -0.0015 (-0.14%). Sep yen futures (J6U9) closed down by -0.0017 (-0.17%), and USD/JPY (^USDJPY) rose +0.18 (+0.17%). The dollar index moved higher Friday for a fourth day and posted a 2-week high on weakness in EUR/USD and strength in USD/JPY. EUR/USD tumbled to a 2-week low Friday on bearish carry-over from ECB Governing member Rehn's comments Thursday that it is better for the ECB "to overshoot than undershoot" on stimulus. Rehn's comments suggest he favors the ECB boosting stimulus measures when it meets next on September 12. The dollar gave up most of its gains Friday afternoon on comments from Minneapolis Fed President Kashkari who said recession risks have risen "quite a bit" and the Fed will "probably" cut interest rates since it is better to be early than late when responding to an economic slowdown. Friday's U.S. economic data was mixed for the dollar. U.S. July housing starts unexpectedly fell -4.0% to a 5-month low of 1.191 million, weaker than expectations of +0.2% to 1.256 million. Also, the University of Michigan U.S. Aug consumer sentiment fell -6.3 to a 7-month low of 92.1, weaker than expectations of -1.4 to 97.0. However, July building permits, a proxy for future construction, rose +8.4% to a 7-month high of 1.336 million, stronger than expectations of +3.1% to 1.270 million. The yuan fell slightly Friday by -0.13% to 7.0428 yuan/USD, modestly above Tuesday's 11-1/4 year low of 7.0726 yuan/USD. Trade tensions eased slightly Friday after President Trump late Thursday said he had a call scheduled "very soon" with Chinese President Xi Jinping on trade. USD/JPY moved higher Friday as a rally in stocks curbed the safe-haven demand for the yen. GBP/USD rose +0.51% Friday to a 1-week high, which limited strength in the dollar, on speculation UK opposition Labour Party leader Corbyn will find support to stop a no-deal Brexit. Big Picture Dollar Factors: Bullish factors for the dollar index include (1) the Fed's go-slow approach to cutting interest rates, (2) relative strength in the U.S. economy, and (3) the repatriation of U.S. corporate overseas cash under the 2018 tax law. Bearish factors include (1) market expectations for four Fed rate cuts through the end of 2020, (2) trade tensions and Washington political uncertainty, and (3) the wide U.S. budget and current account deficits. Bearish factors for EUR/USD include (1) expectations for the ECB to cut interest rates by -10 bp at its September meeting and to restart its QE program, (2) weak Eurozone economic growth, (3) the extremely low 10-year bund yield of -0.727%, which illustrates the euro's poor interest rate differentials, and (4) Brexit risks.
The dollar index (DXY00) on Friday rose +0.026 (+0.03%). Sep euro-fx futures (E6U9) closed down -0.0011 (-0.09%), and EUR/USD (^EURUSD) fell -0.0015 (-0.14%). Sep yen futures (J6U9) closed down by -0.0017 (-0.17%), and USD/JPY (^USDJPY) rose +0.18 (+0.17%). The dollar index moved higher Friday for a fourth day and posted a 2-week high on weakness in EUR/USD and strength in USD/JPY. EUR/USD tumbled to a 2-week low Friday on bearish carry-over from ECB Governing member Rehn's comments Thursday that it is better for the ECB "to overshoot than undershoot" on stimulus. Rehn's comments suggest he favors the ECB boosting stimulus measures when it meets next on September 12. The dollar gave up most of its gains Friday afternoon on comments from Minneapolis Fed President Kashkari who said recession risks have risen "quite a bit" and the Fed will "probably" cut interest rates since it is better to be early than late when responding to an economic slowdown. Friday's U.S. economic data was mixed for the dollar. U.S. July housing starts unexpectedly fell -4.0% to a 5-month low of 1.191 million, weaker than expectations of +0.2% to 1.256 million. Also, the University of Michigan U.S. Aug consumer sentiment fell -6.3 to a 7-month low of 92.1, weaker than expectations of -1.4 to 97.0. However, July building permits, a proxy for future construction, rose +8.4% to a 7-month high of 1.336 million, stronger than expectations of +3.1% to 1.270 million. The yuan fell slightly Friday by -0.13% to 7.0428 yuan/USD, modestly above Tuesday's 11-1/4 year low of 7.0726 yuan/USD. Trade tensions eased slightly Friday after President Trump late Thursday said he had a call scheduled "very soon" with Chinese President Xi Jinping on trade. USD/JPY moved higher Friday as a rally in stocks curbed the safe-haven demand for the yen. GBP/USD rose +0.51% Friday to a 1-week high, which limited strength in the dollar, on speculation UK opposition Labour Party leader Corbyn will find support to stop a no-deal Brexit. Big Picture Dollar Factors: Bullish factors for the dollar index include (1) the Fed's go-slow approach to cutting interest rates, (2) relative strength in the U.S. economy, and (3) the repatriation of U.S. corporate overseas cash under the 2018 tax law. Bearish factors include (1) market expectations for four Fed rate cuts through the end of 2020, (2) trade tensions and Washington political uncertainty, and (3) the wide U.S. budget and current account deficits. Bearish factors for EUR/USD include (1) expectations for the ECB to cut interest rates by -10 bp at its September meeting and to restart its QE program, (2) weak Eurozone economic growth, (3) the extremely low 10-year bund yield of -0.727%, which illustrates the euro's poor interest rate differentials, and (4) Brexit risks.
