Forex

Dollar slips on softer US yields; Aussie shines

Reuters TOKYO | Updated on July 18, 2019 Published on July 18, 2019

The dollar broadly edged lower against its rivals on Thursday after softer US Treasury yields in the wake of weak US housing data sapped demand as investors focused their attention on a Fed meeting next week.

While expectations of a 25 basis point rate cut are baked into money markets, some investors are gunning for a 50 basis point cut. The Fed is widely expected to cut a total of 75 basis points by the end of the year.

Morgan Stanley strategists said in a daily note that the overall outlook for riskier assets remained bearish thanks to disappointing US earnings reports and weak prospects for global trade.

“All this gives strong reason for the current internationally-focused Fed to consider cutting rates by 50 bps at the end of the month,” they said. A 50 basis point cut would weaken the dollar sharply, particularly against high-yielding currencies, they said.

Against a basket of its rivals, the dollar edged 0.1 per cent lower to 97.09. The weakness in the dollar pushed other currencies higher. The Australian dollar led gainers thanks to a solid jobs report.

Australian employment rose by a surprisingly small 500 positions in June, but all the weakness was in part-time work with full-time jobs rising by 21,100. The unemployment rate held steady at 5.2 per cent for a third month running.

The Aussie was 0.3 per cent higher at $0.7031. “The Australian dollar drew a significant part of its support from the June underemployment rate, which fell to 8.2 per cent from 8.6 per cent,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

He said the underemployment rate had a higher correlation with policy rates and wages than the jobless rate and was likely to attract more attention in the future.

The euro added to modest overnight gains and edged up 0.1 per cent to $1.1238. Its gains were restrained by expectations of easing from the European Central Bank as early as next week.

Published on July 18, 2019
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