Trade Featured As Dollar Drifts Lower

The US dollar has a slightly lower bias today, but the against most of the major currencies, it is consolidating within the range set at the end of last week. The main exceptions are sterling and the Canadian dollar. They had extended their pre-weekend losses yesterday, and are trading within yesterday’s range today. The news stream will be light in North America, with no market moving data on tap and no central bank speakers scheduled.  

Equity markets are firm. The MSCI Asia Pacific Index gained about 0.15% to post its second consecutive advance after losing a little more than 0.5% in two sessions before last weekend. The minor gain is impressive given that Japan, Taiwan, Korean and Indian equity prices eased. Stock markets are mostly higher in Europe, but gains are minor. The Dow Jones Stoxx 600 is slightly higher. Weakness in consumer names, materials, and real estate offsets gains in energy, utilities, industrials, and financials.  

Bond markets are narrowly mixed. Australian and Japanese 10-year benchmarks changed by less than a basis point. New Zealand bonds remain strong. The 10-year yield fell another 6.5 bp to 2.83%. The yield has fallen by nearly 20 bp in the past week. The Reserve Bank of New Zealand meets on Thursday, and many appear to be positioning more dovish rhetoric. European bond yields are little changed, though we note that Italy and Portugal are faring better than Spain. Meanwhile, US Treasury and UK Gilt yields are slightly firmer.  

There are few option strikes that may be in play today. The $1.18 strike inn is on the bubble.There is a large A$2.5 bln option struck at $0.7950 that may influence activity today.  

The data theme today is trading. Trade figures from Japan, China, and Germany have been reported. Japan and Germany reported June data, while China reported its balance for July.  

Japan reported a JPY934.6 bln current account surplus. It was down from JPY1.653 trillion in May. There are strong seasonal influences in Japan’s balance and that current account surplus typically narrows in June from May. However, a key takeaway is that 12-month average is improved to JPY1.697 trillion from JPY1.544 average last June. One of the most important characteristics of Japan’s external surplus is that is not so much driven by trade, but by the primary income surplus (interest and dividends generated from overseas portfolio investment).