Déjà Vu All Over Again

Déjà vu all over again

The primary sentiment driver overnight was the dismal non-manufacturing (services) ISM report, which declined from 55.5 to 51.4, the lowest level since early 2010. The USD nosedived on the print as the re-pricing for September FOMC rate hike fell to less than 20  % probability. The significance of the ISM services print cannot go understated as services account for 70 % + of the value of US GDP and will likely create jitters regarding US Q3 GDP.

Other asset classes have reacted on Cue, 10 –year Treasury yields toppled to 1.53% and with the likelihood of the Feds on the fence in ‘lower for longer ‘ mode, the S&P was able to  close in the green erasing earlier  losses

Australia   Dollar- Yield Appeal 

“Déjà vu all over again,” as the chase for yield is back in vogue.

The Aussie was trading very well bid going into yesterday RBA decision and has rocketed higher on the back of the dismal US ISM services report now approaching .7700 level in early trade

With the carry-trade mentality taking hold, expect external factors and the broader USD trend to lead the charge when traders adopt this mindset.  With September and December rate hike probabilities likely to move lower, we could see a further drop on the USD, which would open up for a test of the August AUDUSD .7753 high

A few takeaways from yesterday’s RBA decision.

The overall tone was one of neutrality with little in the way of forward guidance, which indicates the RBA is “chilling out” sending a clear message that they are content to evaluate national data but certainly in no rush to cut interest rates.  However, given the RBA’s steadfast, dedicated focus on inflation; November becomes an interesting meeting. At the meeting,  the RBA will have the Q3 CPI data as well as the comfort of a clearer picture on the probable trajectory of US interest rates.

Keep in mind; it was Governor Stevens last meeting, and it was always more likely he was going to defer to incoming governor Lowe to leave his policy mark with the next RBA decision.

Of a regional concern, NZ manufacturers and exporters are reporting a 15 % drop in sales with export sales tumbling  20% year over year as the high NZD dollar takes grip.

Japanese Yen- That Sinking Feeling 

USDJPY overnight move was part in parcel to the broader big dollar move as the Fed repricing has sent the Greenback into a tailspin. Look for the repricing of September and December to weigh on USDJPY sentiment

Leading up to the ISM the USDJPY was trading defensively after comments from Abe adviser Hamada saying the BoJ should wait for the Fed before deciding on next policy steps. However, after yesterday horrible ISM print, sadly for the BoJ, they may need to wait until December to have that question answered.

With September, US rate hike all but off the cards, it’s over to the BoJ to get their point across at the Next BoJ meeting on Sept 20-21. However, without the Feds around to support the heavy lifting in September ( raise rates),  the market is less than convinced any standard BoJ policy will be effective at this stage, look for probes lower .

However, the BoJ could still make a splash by pulling out some unconventional policy measure, but pressure is certainly mounting

All eyes will be on Fed Williams tonight, which will likely see a small US  dollar rebound as its unlikely the Dovish Williams will take flight. While the Feds have far to much ground to cover to keep a September rate hike on the table, he will most likely talk up December.


Broader USD moves continued to dominate trend more accurately the Yaun was taking its lead from  USDJPY.

After brushing up against the perceived PBoc” line in the sand,” yesterday policy makers were given a reprieve after the dismal US services ISM all but ruled out a September US rate hike.  Despite these pull backs the market remains firmly bid as sentiment remains long term bearish CNH


In the Chase for yield mentality the high yielder EM Asia currencies like the IDR and INR will be the near-term beneficiaries. The MYR remains the risky play in the region as OIL prices continue to gyrate.  Also, BNM rate decision later in the session with market consensus for an unchanged call but with a dovish stance

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes