Asia Pacific Market Open Talking Points
- EUR/USD declined ahead of this week’s ECB rate decision
- Gold prices extended selloff, USD rose and bond yields fell
- AUD/USD may rise on RBA if dovish bets get disappointed
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Key FX Developments Monday
The Euro underperformed against its major counterparts on Monday, sinking with a decline in hawkish ECB monetary policy bets. Overnight index swaps are now pricing in a 48.6% chance of a hike by December, down from 53.3% possibility at the end of last week. Ahead of this week’s ECB rate decision, markets might be expecting a more cautious statement given regional economic growth concerns.
Meanwhile, the US Dollar capitalized on declines in the Euro, just narrowly outperforming its major peers. Most of its gains occurred during the first half of the session where there was also weakness in Nikkei 225 futures. But, the Greenback struggled to capitalize on safe-haven demand as the S&P 500 tumbled despite increasingly welcome progress in US-China trade negotiations.
This may have been because of ebbing Fed rate hike bets, sapping the full potential from USD as local front-end government bond yields declined. What was more clear today was that gold prices weakened as an anti-fiat asset. Falling bond yields and a cautiously higher US Dollar both worked against the yellow commodity, which has no interest-bearing qualities. XAU/USD has now fallen about 3% after Iwarned about clear-cut bearish technical price signals.
Tuesday’s Asia Pacific Trading Session
Tuesday’s APAC session contains the RBA rate decision. What has been driving AUD/USD lower since February’s monetary policy announcement has arguably been the central bank’s shift away from favoring a hike as its next move. But, it continues to hold onto the notion that there is no strong case for a near-term adjustment in rates.
Yet, overnight index swaps are giving a 56.1% chance of a cut by year-end. If the RBA continues to reiterate their patient tone, the Australian Dollar may rally as dovish policy bets get priced out. Its ultimate direction will more likely be determined by risk trends though, influenced by Caixin China PMI services data. S&P 500 futures are pointing lower, the anti-risk Japanese Yen may gain if weakness in the Nikkei 225 ensues.
US Trading Session Economic Events
Asia Pacific Trading Session Economic Events
** All times listed in GMT. See the full economic calendar here
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— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter