- The Australian ASX 200 rallied 2.42% in the Asian session as investors positioned for a 15-basis points interest rate cut from the RBA at its next meeting in early October
- Gains in the US Dollar weren’t limited by Federal Reserve Chair Jerome Powell’s testimony before the House Financial Services Committee.
- After confirming an Inverse Head and Shoulders pattern the US Dollar Index could advance further.
Safe havens US Dollar and Japanese Yen extended gains versus major peers. Investors digested Federal Reserve Chair Jerome Powell’s testimony before the House Financial Services Committee.
The Australian ASX 200 rallied 2.42% as investors assumed that the Reserve Bank of Australia will cut rates by 0.15% at its October 6 meeting.
Gold and silver descended further and US 10-year Treasury yields drifted back under 67 basis points.
US manufacturing PMI figures for September will be in focus in the US session
USD Shrugs Off Powell Testimony, Safe Haven Flows Support USD
Comments by the Fed’s Chair Jerome Powell and by US Treasury Secretary Steve Mnuchin’s before the House Financial Services Committee didn’t prevent the US Dollar from pushing higher, through a key resistance. Rising covid cases and the tightening of restrictions in some European countries dragged on risk sentiment.
Powell reiterated the Fed’s accommodative stance and commitment to do what it can, for as long as necessary to support the economic recovery and limit scarring to the economy. With this in mind, there is a chance that the Greenback’s 2.73% rally from the yearly low could turn out to be a counter-trend correction.
US Dollar’s recent spike to an almost 2 month high didn’t coincide with any marked rise in volatility or notable deterioration in credit market conditions. The VIX (CBOE Volatility Index) hovers under 30. The TED spread – a measure of perceived risk in the financial system – is under levels seen in late May..
Consequently, the US Dollar’s rally to fresh monthly highs could come to a sharp end in the coming days, if the relatively gloomy fundamental outlook fails to impact credit market conditions.