The global markets were smashed during yesterday’s trading as the recent bull run in the equities continued to correct itself in dramatic fashion. The Dow Jones finished the day down 4.6% with the S&P 500 not far behind at -4.10%. This led to huge ‘risk off’ flows in the currencies with the UsdJpy and Jpy crosses on the receiving end of strong selling pressure. The dollar continued it’s move back to stronger levels with the Dxy back up above 89.50, this was helped along by better than expected ISM Non-Manufacturing data during the New York session but the real driver was the equity crash . With the exception of the Jpy, the dollar appreciated against all the major currencies with the commodity currencies looking especially vulnerable once again. Oil finished the day well and truly on the back foot with WTI down 2% and Brent down nearly 2.5%.
The Aussie has had a good move back down after last week’s poor inflation data both against the dollar and on the crosses and we have major event risk today for the currency in the form of retail sales and Trade Balance numbers followed by the first RBA Cash Rate announcement of the year. Expectation is firmly in the ‘no change’ camp as it has been on the last 18 occasions but the jury is out on how they are looking at the rest of the year and investors will be monitoring the statement carefully for any changes and how they translate to forward guidance for the market. We expect there to be little change and this should continue to lead to further downside moves for the currency in the current market conditions.
It’s actually fairly quiet in terms of fundamental economic releases for the rest of the day with just the Trade Balance numbers out of Canada and the US due later in the day, however, the market needs little in the way of catalysts in it’s current form to generate moves so expect traders to continue to closely monitor the equity markets as the day progress for the next moves in the currencies.
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Monday’s City: Rome, Italy