The USD dropped to near milestone lows earlier today after the treble impact of retreating yields, soft U.S. economic data, and decline in safe-haven demand from broad selling pressure.
Against the EUR, AUD, GBP, CHF, and CNY, the USD is set to re-test multi-month or multi-year lows made earlier in the month, though moves in the morning trade were small as Wednesday’s release of the Federal Reserve minutes looms on the horizon.
The EUR moved to $1.1874, just below a recent two-year high of $1.1916. The AUD held at $0.7213, close to an 18-month top of $0.7242 hit on August 7th.
Investors have been relieved by a delay in the review of the U.S.-China trade deal this week, which has left the agreement standing and reinforced a belief that the trade relationship can hold even amidst conflict on multiple other fronts.
A fresh rally in tech stocks added to the positive mood, and together with a pullback in U.S. yields and a weak reading in a U.S. manufacturing survey has many traders sticking to their bearish convictions on the dollar. Net bearish bets on the USD grew to their largest since May 2011 last week and spot trade in recent days suggest the position has only grown further since.
The CNY set at 6.9306 per dollar, within range of a five-month high of 6.9280, despite the U.S. Government flagging a further tightening of restrictions against Chinese tech gear maker Huawei.
On the data front, the New York Fed’s Empire State business conditions index plummeted to 3.7 in August from 17.2 in July, far lower than the predicted 15 points.
Delinquency rates for residential mortgages also posted the largest quarterly increase on record. “A high delinquency rate for an extended period can impair the banking system,” said Commonwealth Bank of Australia currency analyst Joe Capurso.
“An impaired banking system could hold back the U.S. economic recovery as it did in the aftermath of the (2008 crisis),” he said.
The Japanese yen rose back past 106-per-dollar to 105.88 after a 2.6 basis point drop in benchmark U.S. 10-year government bond yields overnight. Investors expect the release of U.S. Federal Reserve minutes on Wednesday to possibly determine the next moves.
The GBP was stalled around $1.1311 as investors are watching the latest round of Brexit negotiations, with the future of London’s financial institutions’ access to the European market in focus.
The DXY sat at an eight-session low of 92.762. Among G10 currencies, the NZD was lagged as New Zealand’s largest city remains under lockdown, and anticipation of future monetary easing weighs on the currency. It last bought $0.6557 and traders said bets on the kiwi dropping had supported the Aussie as investors sought exposure to the AUD/NZD pair, which is trading at a two-year peak.
