USD up, AUD/NZD down on trade optimism; not much on the schedule

Rates as of 05:00 GMT


  • Sell EUR/USD: It seems to be moving at last!
  • Buy GBP/USD: The polls have been favoring the Conservatives. The market verdict is better a hard Brexit with the Tories than anything with Labour under Corbyn.
  • Sell USD/CAD: As oil continues to climb and the US administration takes a less hard-line stance on trade, I think CAD should benefit.

Market Recap

The big issue this morning, as usual, is trade. While JPY weakened overall in response to the recent hints of a “Phase One” trade deal, there was a setback yesterday when China’s Global Times Editor Hu Xijin sent out a cryptic tweet about how both sides would have to remove tariffs proportionately. I’m not sure exactly what it meant, but in any case it suggests that we’re not going to see unilateral disarmament from either side. JPY is strengthening a bit this morning as a result.

I think however that optimism will probably come back in as Trump is desperate for a win and desperate to distract the media from his domestic problems. Yesterday’s US local elections showed the strength of the opposition to Trump. That suggest to me that he’s going to want to shore up his base with the Midwest farmers and get some good news out there. I’m expecting some positive tweet about trade right about when New York stock market opens.

USD once again near the top of the list while EUR is at the bottom. Are we actually going to get some movement in EUR/USD? The trading range in EUR/USD recently has been the narrowest since the common currency was launched.

Yesterday’s US purchasing managers indices (PMIs) were mixed. The Institute of Supply Management (ISM) non-manufacturing PMI was up a better-than-expected 2.1 points to 54.7 (53.5 expected), with both new orders and the closely watched employment index up sharply as well. On the other hand, the corresponding Markit index was revised down 0.4 points to 50.6, barely in expansionary territory, with the employment component falling well into contractionary territory at 47.5, the lowest since December 2009! The divergence between the two measures echos what’s happening in China, where the official manufacturing PMI and the Markit manufacturing PMI have diverged notably (although in the opposite direction – in the case of China, the Markit version is showing a notably rosier picture). In the case of the US, the ISM index, with its much longer history, is more closely watched than the Markt version, but they’re both significant for the market. The divergence just adds to the confusion about what’s going on with the US economy.

Also, once again AUD/NZD was up sharply as well. It makes sense that AUD was up on continued optimism about the trade picture, but why has NZD been down two days in a row? Today isn’t much of a “risk on” or “risk off” day – US stocks were narrowly mixed as are Asian markets (some up, some down, no big moves). It appears that AUD/NZD is following USD/CNY or USD/CNH to some degree – so yes, it’s clear that AUD is a better bellweather of US-China trade than NZD. Given my optimistic view on trade for today, I think AUD/NZD could decline further.

Today’s market

The European day starts with German factory orders.These are expected to be pretty dismal. About the best we can say is that they’re not expected to fall from the previous month. That means that they should fall yoy at a slightly slower pace than in the previous month. It looks like orders are over their worst, but no recovery yet. EUR negative

There will be an ECB forum on “Banking at a crossroads: resilience and innovation in an era of uncertainty.” A number of financial sector grandees will be speaking, including ECB VP de Guindos and ECB Board Member Mersch. Given that the subject is banking supervision, I don’t know if they’ll say anything of interest to the FX market. You can watch the event live (it will be conducted in English) at

Overnight the Australian trade balance is expected to show a further decline in the surplus, probably because of a fall in iron ore prices during the month.

Nonetheless, the consensus trade surplus would still be high enough to allow Australia to register a current account surplus for Q2. This would be not only the second quarterly current account surplus in a row, but also the just the second one in the past 44 years. (The country has a massive deficit on primary income – mostly because of repatriation of profits and interest payments on bonds).

Hence it should be looked at as positive for AUD.


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