After quite an eventful weekend that saw the US carry out an airstrike against Iranian nuclear facilities, the United States Dollar is trading stronger across the G10 and emerging market boards today as investors flock to safety.
Overview
FX moves, though, are a touch more muted than many strategists may have expected as US direct action had been telegraphed in the preceding week, but the Buck has still gained up to a percent of ground back against most major currencies. A volatile Asian session opening yesterday afternoon saw higher spreads and implied volatility through most major markets, but the Dollar has been the clear winner since FX markets reopened after the weekend through Tokyo and London trading.
Though the US administration had not made a commitment prior to Saturday evening to carry out a direct military action against Iran to further set back its nuclear program ambitions, President Trump through the week had at least hinted toward the possibility of such a strike through the week prior in brief comments to the media as well as social media posts, keeping the larger market reaction to Saturday’s strike fairly muted. Equities are set to open lower, but the movements look to be on the smaller side, and the Dollar’s movement today is larger than both equity and oil price movements. Iran, for its part, does count Saturday’s actions as an ‘act of war’ and has vowed retaliation against the US, so traders do remain on edge as the world waits for the Iranian response to direct military intervention. Oil markets, in particular, are concerned that Iran could move to block or restrict shipping through the Strait of Hormuz, through which more than 25% of the world’s oil flows. Oil prices initially jumped up above $81 per barrel on the risk of such an event, but have since pared their gains to trade quite close to pricing at close of business Friday. International markets, largely, have followed suit and though some initial volatility showed in the early sessions overnight, the global community seems to be in ‘wait-and-see’ mode ahead of any retaliatory action from Iran.
The US data calendar, as well, will bring further life to markets through the week with manufacturing, service, and composite PMIs due out later this morning. All sectors are expected to show weak growth, but avoid contractionary territory. The third reading of first quarter GDP, as well, is due out Thursday morning, expected to show a slight contraction while prices rose in the neighborhood of 3.7%.
What to Watch This Week…
- US Flash PMI June, Monday 9:45AM
- US Final Q1 GDP, Thursday 8:30AM
- Banxico Interest Rate Decision, Thursday
- US PCE Deflator Index, Friday 8:30AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
NZD ⇓
The New Zealand Dollar, followed closely by its peer in Australia, is the worst performer in the G10 this morning versus the Buck, losing 1.2% of ground while AUD slid nearly a percent against USD through the Tokyo and London sessions. AUD and NZD have long been accurate global risk barometers, and this morning’s price action screams of a flight to safety. The Antipodean nations’ close relationships with China, as well, are also driving their currencies down as China is a technical ally of Iran. Though China has expressed concern over US involvement in the current Iran-Israel conflict, the nation has not as of yet offered military support.
JPY ⇓
Japanese Yen, in a rather surprising move given the risk-off positioning of FX markets currently, has slid nearly a percent versus USD as traders flee to the relative safety of the Buck. Japan’s status as a net-importer of energy including oil is weighing heavily on the traditional safe-haven currency given a high level of global concern surrounding a potential disruption of oil shipping through the Strait of Hormuz, and JPY is not seeing anywhere near the usual boost it may get from geopolitical tensions rising around the world.
