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A pretty busy session for forex traders, which saw the high-yielders bow down to their lower-yielding counterparts on extensions of previous sessions’ risk-averse themes.

  • China’s CB leading index up by 1.5% against 1.6% growth in March
  • Australia’s MI leading index improves by 0.2% vs. 0.1% decline in March
  • Japan’s flash manufacturing PMI dips from 53.8 to 52.5 in May
  • Australia’s construction work done (q/q) inches up by 0.2% after declining by 18.3% in Q4 2017
  • Turkish Lira drops by another 2.0%
  • RBNZ considers “unconventional” policies including QE and negative interest rates

Major Events/Reports:

Turkish Lira stumbles

I don’t usually talk about exotic currencies but when I do, it’s to report strong moves like these.

The Turkish Lira (TRY) extended its recent declines and tumbled by another 2.0% to new record lows in today’s early Asian session as traders price in ratings agencies sounding the alarm over President Erdogan wanting control over monetary policy.

Fitch noted that “[g]reater erosion of monetary policy independence would put further pressure on Turkey’s sovereign credit profile.”

RBNZ is considering “unconventional” easing policies

Earlier today the Reserve Bank of New Zealand (RBNZ) published a paper titled “Aspects of implementing unconventional monetary policy in New Zealand

In it the central bank outlined five “unconventional” easing policies including forward guidance, interest rate swaps, term lending facilities, negative interest rates, and quantitative easing.

RBNZ qualified that:

“While there is no need to introduce unconventional monetary policies in New Zealand at this time, it is prudent to learn from other countries’ experiences and examine how such polices might work in New Zealand if the need arises.”

However, Assistant Governor John McDermott also said in an interview that “the probability of needing them at this point in the cycle is higher than it ever was in history” and that “it would be silly of us not to be ready just in case.

Not only did the paper and McDermott’s interview reinforce the RBNZ’s dovish stance, but the tone of the whole event also took Kiwi traders by surprise.

Overall risk aversion

Asian session traders caught up to their U.S. counterparts in pricing in Trump’s surprisingly downbeat assessment of the U.S.-China trade relations.

Remember that, aside from hinting that he’s not pleased with how trade negotiations are going, Trump also shared during the previous session that there’s “substantial chance” that there won’t be a meeting between him and Kim Jong Un next month.

Overall, the reports suggested that this week’s relief rallies might have been too premature. The Asian bourses took hits with Nikkei feeling the extra drag from a stronger yen.

  • Nikkei is down by 1.15% to 22,695.8
  • Australia’s ASX 200 is up by 0.04% to 6,045.0
  • Shanghai index is down by 0.80% to 3,188.652
  • Hang Seng is down by 1.04% to 30,909.0

Even commodity prices reflected the risk aversion with safe-haven gold getting support while oil prices continued to roll back on news that OPEC might curb its output quota next month.

  • Gold is up by 0.09% to $1,292.33
  • Brent crude oil is down by 0.22% to $71.93
  • U.S. WTI is down by 0.40% to $70.09.

Major Market Mover(s):

JPY

Traders flocked to the low-yielding yen on the back of overall risk aversion in the markets.

USD/JPY is down by 39 pips (-0.35%) to 110.50
EUR/JPY is down by 68 pips (-0.52%) to 129.94
GBP/JPY is down by 73 pips (-0.49%) to 148.18

Comdolls

Risk aversion alone might have weighed on the higher-yielding comdolls, but currency-specific news also didn’t help the Aussie, Loonie, and Kiwi.

The Aussie, for example, was knocked down early in the session after Australia printed a much weaker-than-expected quarterly construction report. The petrocurrency Loonie, on the other hand, also dealt with lower crude oil prices.

AUD/USD is down by 31 pips (-0.41%) to .7543
AUD/JPY is down by 65 pips (-0.77%) to 83.35
USD/CAD is up by 33 pips (+0.26%) to 1.2851
CAD/JPY is down by 53 pips (-0.61%) to 85.98

Meanwhile, it was the Kiwi that took the biggest hits thanks to the RBNZ surprising us with concrete considerations for easier monetary policies.

NZD/USD is down by 37 pips (-0.54%) to .6844
NZD/JPY is down by 68 pips (-0.88%) to 76.20
AUD/NZD is up by 15 pips (+0.14%) to 1.0939
GBP/NZD is up by 81 pips (+0.42%) to 1.9447

Watch Out For:

  • 4:30 am GMT: Japan’s all industries activity (0.1% expected, 0.4% previous)
  • 7:00 am GMT: France’s flash manufacturing PMI (53.6 expected, 53.8 previous)
  • 7:00 am GMT: France’s flash services PMI (57.1 expected, 57.4 previous)
  • 7:30 am GMT: Germany’s flash manufacturing PMI (57.9 expected, 58.1 previous)
  • 7:30 am GMT: Germany’s flash services PMI (53.1 expected, 53.0 previous)
  • 8:00 am GMT: RBA Governor Lowe to give a speech in Sydney
  • 8:00 am GMT: Euro Zone’s flash manufacturing PMI (56.1 expected, 56.2 previous)
  • 8:00 am GMT: Euro Zone’s flash services PMI to remain at 54.7?
  • 8:30 am GMT: U.K.’s inflation numbers. Read our short trading guide about it!
  • 8:30 am GMT: U.K.’s house price index (y/y) estimated to remain at 4.4%
  • 10:00 am GMT: U.K.’s CBI realized sales (4 expected, 2 previous)