During Friday’s session, the USD reached its lowest level since the beginning of 2015, while US 10-year rates fell almost to the 2% mark, before closing slightly higher.
Familiar themes remained in the spotlight on Friday. US and North Korea tensions continued. Trump said it’s not inevitable that the US will wind up in a war with North Korea, but military action remained an option. North Korea was angry with the US Ambassador to the United Nations, describing her comments as a “hysteric fit” and that the US would “pay dearly”. Over the weekend, North Korea celebrated “Foundation Day” but the widely predicted testing of an ICBM did not occur.
Meanwhile, investors were concerned as Hurricane Irma approached Florida, with some estimates seeing it as the costliest storm on record. This added to the uncertainty about Fed policy going forward.
In a CNBC interview, Fed NY President Dudley said that back-to-back hurricanes in Q3 could temporarily influence the timing of the next interest-rate increase, although above-trend growth does warrant continued gradual rate hikes. This followed a speech earlier in the day where he remarked that he was surprised by the persistent inflation shortfall and argued for a shallow rate hike path. The Fed’s George, a known hawk, argued that “it is time to continue to move that interest rate higher” and wasn’t worried about low inflation.
The USD majors index fell for the seventh consecutive day, down 0.2% for the day and taking the cumulative fall for the week to 1.7%. Key technical levels were breached along the way, making the USD vulnerable to further downside pressure, although there was a recovery of sorts as European trading got underway and it managed to recover 0.4% from its nadir.
The weak USD saw the NZD climb as high as 0.7338, a little after the NZ close and it was pretty much downhill from there, closing the week around the 0.7265 mark. The AUD followed a similar path, reaching a high of 0.8125 but closing around 0.8060. NZD/AUD ended the day 0.3% higher around 0.9020, with all of that gain occurring during NZ trading hours. Of note, breaking the recent strong run, industrial metals plunged, with nickel down 5½% and copper down over 3%. The significant outperformance of hard commodities compared to soft commodities has been instrumental in driving NZD/AUD down from 0.95 to 0.90 over recent months and we’d expect some reversal if those metal prices unwind to any significant degree.
The weak USD saw USD/JPY break down through key support levels before settling down 0.6% for the day at 107.85. Of the majors GBP was the strongest performer, up 0.8% to 1.32 despite some mixed data on industrial production and construction. EUR ended the day only up slightly against the USD at 1.2040 after earlier peaking over 1.2090.
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