Dollar, yields sag as gold, stocks hits fresh peaks

* S&P 500 shakes off economic worries to trade higher, led by Nvidia

* Middle East tensions, rate cut bets power gold to record high

* Sterling hits new March 2022 high as USD flags

* BoJ Chief signals no rush in raising rates further

FX: USD fell through major long-term support at 100.61. The sell-off came mainly after China stimulus news and then picked up after weaker than expected consumer confidence data. The August figure printed at 98.7 versus 105.6 and 104.0 estimate. Odds for another 50bps rate cut in November rose to 61% from 53% the day before.

EUR pushed up away from December at 1.1139 closing on its highs. Recent peaks sit around 1.12. Hawkish comments from an ECB official may have helped the single currency. GC member Muller said rate setters may lack enough data to make a rate decision in October. German IFO data fell to an 8-month low.

GBP moved higher for a fifth day to a new peak at 1.3415. Bullish momentum sees bulls eyeing up 1.35, though prices in cable have now entered mildly overbought territory. BoE Governor Bailey reiterated that rates are on a downward path but that will path be gradual. This follows last week’s 8-1 vote split and finely balanced cut in August.

USD/JPY again traded in a narrow range closing just below the 21-day SMA at 143.34. The major has resistance at the long-term retracement level (50% of the 2023 low to 2024 high) at 144.58. Governor Ueda was on the wires early in the day remarking that markets remain somewhat stable and the BOJ is in no rush to raise rates.

AUD made more fresh year-to-date highs, also rising above the December 2023 top at 0.6871. The next upside target is 0.6899. China stimulus helped with an emphasis on helping the real estate sector while iron ore jumped, which is a key benchmark of the property market. The RBA stayed consistently hawkish as it left rates unchanged as expected. It remains on inflation-watch and it seems highly unlikely to cut rates this year. USD/CAD fell sharply to close just below the August low at 1.3436 on the solid risk mood and oil prices.

US Stocks all closed in the green with more fresh record highs for the S&P 500 and Dow. The S&P 500 gained 0.25% to settle at 5,732. The tech-dominated Nasdaq 100 added 0.47% to finish at 19,944. The Dow closed 0.20% higher at 42,208. It was the fourth straight new closing high for the DJIA. The Nasdaq is still a little over 3% from its all-time top. Since the 1990s, the S&P 500’s median 12-month gain after a first rate cut in a new Fed cycle has been 11%. Of the benchmark sectors, materials and industrials ended at record closing highs. Nvidia led tech higher with a 4% gain.

Asian stocks: Futures are positive. Asian stocks were mostly higher after China’s stimulus package. The ASX 200 was muted after the RBA opted for a hawkish hold. The Nikkei 225 gapped above 38,000 as it caught up after the long weekend.  The Shanghai Composite and Hang Seng jumped over 4% after the measures that included rate cuts, plus new tools to support the equity market. Brokers and funds can tap the PBoC to buy stocks. Many China watchers didn’t think this was the “big bazooka” needed to finally turn things around. Fiscal measures will also be needed for the government to reach its 5% target.

Gold posted more record highs at $2664 as the precious metal rose for a fourth straight day. That win streak hasn’t been seen since the start of April.  Bond yields turned lower as the dollar sold off.

Day Ahead – Australia CPI

The monthly CPI indicator for August is forecast to ease to 2.7% from 3.3% in July and 3.8% in June. The RBA said yesterday headline inflation may fall further temporarily, but it is not expected to sustainably return to target until 2026. The cost-of-living relief measures are expected to have a significant impact in August. The Commonwealth energy bill relief rebates flowed to two states in July, with others to follow in August.  

This comes after the RBA policy announcement which is kept its Cash Rate unchanged at 4.35% while reiterating that it does not expect to begin policy easing until next year. Nonetheless, the monthly CPI will be eyed given the RBA’s warnings and caution on inflation.

Chart of the Day – NZD/USD hitting the heights

The kiwi has lagged its antipodean neighbour this month, with the commodity-dollars underperforming sterling and the yen. That said, August saw NZD as the best performer in spite of the RBNZ suprisinigly cutting rates mid-month. The external environment was key and more important than the RBNZ, with stocks rebounding and Fed dovish repicing. These factors have also helped the kiwi recently with new year-to-date highs posted.

Bulls broke to the upside yesterday pushing above a minor Fib retracement level at 0.6258. Buyers will want to top the late December high at 0.6369, though prices are getting overbought. That means we could see some retracement soon.

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