Today’s Key Market Drivers: 21st June 2019
US Dollar demand continues to slide.
In a sign that US Dollar demand is slowing further, the closely watched US 10 Year Treasury Yield slipped below 2% on Thursday hitting 1.98%. This is the first time since November 2016 the 10 Year Yield has dipped below 2%.
In the USA bonds are called Treasuries and the yield that investors receive is the interest earned, paid annually by the US Government. Back in November 2018, the 10 Year Yield touched 3.2% which attracted a huge flood of money to buy US Treasuries which are fixed-income investments. Simply put the higher the yield the higher the return on investment investors receive and when traders are buying more and more US Treasuries, they must buy them in US Dollars which means more demand and a higher US Dollar value.
A lower US Treasury yield means fewer investors are attracted to buy US Government bonds and therefore the US Dollar is likely to decline in value. As the Yield falls it is also a good guide to what investment banks and hedge funds are expecting when it comes to interest rate adjustments. The higher the yield goes the higher the likelihood the US Central Bank is going to lift interest rates and the lower it goes the higher probability rates are likely going lower.
The Fed kept rates on hold but the market has traded like they dropped them.
The S&P 500 continued to surge higher on Thursday as traders sold down fixed-income investments such are Treasuries that are likely to show lower returns in the future and continued to buy riskier assets such as stocks and emerging market currencies that may yield a better return in coming quarters.
Traders are now pricing in a 100% chance the Fed cuts rates in July and if US economic data continues to weaken it will only add more downside pressure on the US Dollar.
If Donald Trump advances the likelihood of a positive trade deal with China while he is in Japan at the G20 next week this will likely spur stocks on even further in the short term.
Presently markets have no reason to be nervous and this is why the base currencies that trade against the safe havens have been advancing in the latter part of this week.
Aussie and Kiwi Dollars continue their advance on the Greenback.
The Aussie and Kiwi Dollars recent rally has had nothing to do with positive economic data out of either country and has everything to do with the US Dollar weakening on the back of expectation US rates are going lower and a trade deal with China will eventually be concluded.
When considering the long-term direction of a currency it’s important to keep it simple.
- The major players are going to be placing currency bets on their future expectations of what Central Banks will do with interest rates.
- The short-term price movement we see is a direct result of investment banks and hedge funds placing bets according to how positive or negative an economic data number is.
- The higher the importance of the economic data number the larger the movement in price will be when the data number is out of line with expectation.
Bank of England statement fails to move the Pound.
The statement from the Bank of England barely rated a mention on news wires after it was released. The Pound continued to be supported against the US Dollar and the oldest Central Bank in the world gave traders no reason to buy up or sell off the Queen’s currency.
The BOE has lowered its growth and inflation expectations putting expected GDP growth at 0% for the second quarter. The BOE is also mindful of the fact the UK could crash out of the European Union without a trade deal and the economic impact is unknown but more than likely negative. The BOE previously said in 2018 it would like to lift the official cash rate but with Brexit not yet sorted and global growth slowing the BOE interest rates is expected to remain on hold for the balance of 2019.
No high impacting news this Friday.
Japanese CPI is marked as high impacting but it won’t impact financial markets today. Stocks will continue to remain positive unless something unexpected appears and risk on currencies such as the AUD and NZD will likely continue to be supported. I don’t think the selling pressure on the US Dollar will remain at the same levels it has been in the last 24 hours but I do expect the downtrend to continue for the next few weeks.
Have a wonderful weekend. Stay positive and keep smiling. Life is grand!
About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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