Dollar-Bloc Tumbles, But Euro And Yen Little Changed

The US dollar is sporting a firmer profile today, but it is not the driver. Heightened speculation that Australia and New Zealand may cut interest rates next month is pushing those respective currencies more than 1% lower today. The Canadian dollar is being dragged lower (~).5% in what looks to be primarily sympathy, but it had seemed vulnerable to us in any event. 

Sterling is trading heavily as well, and it was even before the inflation gauges were reported, which were a little firmer than expected. Despite today’s slippage, sterling is trading within yesterday’s range, which is within last Friday’s. 

The euro and yen are little changed. The consolidation evident in sterling is also manifest in the euro. The single currency is within yesterday’s range, and that was inside last Friday’s range. The greenback initially ticked higher in Asia, and the Nikkei bucked the regional fall to extend its recent nearly 1.4%. The performance of Japanese stocks seemed to be a little catch-up after the Monday holiday, but also the anticipation of new fiscal and monetary support has seen sentiment toward Japanese equities improve. 

European stocks are moving lower, with the Dow Jones Stoxx 600 off one percent near midday in London after setting a three-month high yesterday.  All the main industry groups are lower, with the materials and financials off the most. European bond yields are 1-2 bp lower, and the US 10-year Treasury yields three bp lower at 1.54%. 

There are five macro-developments to note today ahead of the North American session:

1. New Zealand announced new lending limits on property purchases, which frees up a monetary policy that can be used to support the economy. The new measures (including a 40% deposit on new purchases) go into effect 1 September. Investors understand this macro-prudential step to increase the risk of a rate cut (from about 40% a week ago to around 75% now) at the August 11 RBNZ meeting.