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The DXY Index appreciated slightly by 0.1% to 104.19 amid a 4.7 bps increase in the US Treasury 10Y bond yield to 4.23%. DXY initially rose 0.2% to 104.32 on the “Trump Trade” triggered by the assassination attempt on presidential candidate Donald Trump. However, DXY returned to last Friday’s 104.09 close in anticipation of a dovish interview by Fed Chair Jerome Powell. Apart from expressing more confidence about US inflation returning to the 2% target, Powell said the Fed could lower rates before inflation hit the target, especially if the labour market weakened unexpectedly. However, DXY started turning up after Powell clearly stated that the Fed was not there yet to provide time-based guidance on rate cuts.
The futures market was undeterred and increased the odds a September Fed cut to 101% from 94.5% last Friday. The upcoming US PCE deflators on July 26 are expected to mirror last week’s softer-than-expected CPI inflation. DXY needs to break below 104, the support levels in April and June, before it can think about revisiting the year’s low beneath 103. Meanwhile, the DXY’s upside is capped around 104.4-104.8 where its 200- and 100-day moving averages are located.
The CNY depreciated only 0.1% to 7.2585 per USD despite China’s disappointing economy. Real GDP growth slowed to 4.7% YoY in 2Q24; consensus had expected growth to hold above 5% from 5.3% in 1Q24. We maintain our 2024 growth forecast at 5% (see report). Net exports remained the key contributor to growth. Nonetheless, weak credit demand and consumption sentiment signal the need for policy easing. The central bank may cut the reserve requirement ratio and 1Y medium-term lending facility rate this quarter. Although we see Fed cuts lowering the USD/CNY in 2H24, we have lifted the end-2024 forecast to 7.21 from 7.12.
NZD depreciated most by 0.7% to 0.6075, back to the low seen at the Reserve Bank of New Zealand meeting on July 10. Following the RBNZ’s dovish pivot, the OIS market now sees 2-3 rate cuts this year vs. 1-2 reductions before the meeting. New Zealand’s 10Y bond yield fell 5.7 bps to 4.32% yesterday, its lowest since December 2023. AUD fell less by 0.4% to 0.6763, underpinned by the Reserve Bank of Australia’s neutral-to-hawkish stance. The futures market sees the RBA keeping the policy rate unchanged at 4.35% this year. However, the 10Y bond yield retreated to 4.275% this morning from a high of 4.428% on July 3. On Sunday, Treasurer Jim Chalmers said that Australia could report its largest back-to-back surpluses on record this September. However, AUD faces profit-taking risks after its 2% rise in the first half of July. A significant resistance lies around the psychological level of 0.68, where a trendline is also located. Hence, the month-long rally in AUD/NZD due to the divergent RBA-RBNZ policy outlook could stall. The cross rate hit the top of a price channel at 1.1135 yesterday after its ascent from 1.0750 in June.
Quote of the day
“Assassination is the extreme form of censorship.”
George Bernard Shaw
15 July in history
Boeing Company (Pacific Aero) was formed by William Boeing in Seattle, Washington USA, in 1916.
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