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NZDUSD Gaps Lower Over Dairy Scares; USD Trades Mixed Against Majors

NZDUSD Gaps Lower Over Dairy Scares; USD Trades Mixed Against Majors

2013-08-05 16:27:00
Kevin Jin,
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THE TAKEAWAY: NZDUSD gaps lower after China places an import ban against tainted milk powder > GBP PMI Services (JUL) comes in much stronger than expected at 60.2 > US ISM Non-manufacturing Composite (JUL) beats expectations at 56.0

The key headline today comes out of New Zealand. China and Russia have banned tainted milk powder imports from Fonterra— one of NZ’s largest dairy companies. Recall that New Zealand’s economy relies upon dairy and agricultural exports. Subsequently, the NZDUSD gapped lower on this news, touching the lowest level since July 15 ($0.7735 low today). The pair has since rebounded and trades just under $0.7800 at the time of writing.

Turning to economic data, there were several optimistic notes in Europe. UK PMI Services (JUL) expanded to 60.2, stronger than the 57.4 Bloomberg News survey consensus figure. This is also the highest reading since December 2006. The Eurozone also reported Retail Sales (YoY) (JUN) that contracted at a slower than expected pace: -0.9% actual; -1.3% Bloomberg News survey expected.

Lastly in North America, the ISM Non-manufacturing Composite came in much stronger than expected: 56.0 July actual; 53.1 Bloomberg News survey expected.

Sovereign bond markets are trading bearish today in Europe and North America although strongly bullish in Asia-Pacific. 10YR government bond yields trade as follows: US +5.0bps (+1.92%) to 2.646%; Germany +3.7bps (+2.24%) to 1.687%; Spain +2.7bps (+0.59%) to 4.580%; Japan -4.4bps (-5.41%) to 0.768%; Australia -19.9bps (-5.25%) to 3.588%; New Zealand -11.1bps (-2.60%) to 4.158% at the time of writing.

It is interesting to note that these violent moves in Australian and Japanese bond yields occur before the RBA Rate Decision tonight and the BoJ Rate Decision on Thursday. The moves in Japanese and Australian yields also outpace those changes in New Zealand bond yields.

Global equities are trading modestly lower: S&P -0.14%; Euro Stoxx -0.07%; FTSE -0.43%; Nikkei -1.44; Hang Seng +0.14%; ASX -0.11% at the time of writing.

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) falls -4 (-0.03%) to $10820 at the time of writing.

AUDUSD 15-minute Chart: August 5, 2013

NZDUSD_Gaps_Lower_Over_Dairy_Scares_USD_Trades_Mixed_Against_Majors_body_Picture_4.png, NZDUSD Gaps Lower Over Dairy Scares; USD Trades Mixed Against Majors

Charts Created using Marketscopeprepared by Kevin Jin

The AUDUSD is mostly flat today, net +0.10% higher at the time of writing. The pair initially declined in Asian trading, hovering above $0.8850. The AUDUSD subsequently rebounded around 00:00 GMT, gaining about +50 pips.

GBPUSD 15-minute Chart: August 5, 2013

NZDUSD_Gaps_Lower_Over_Dairy_Scares_USD_Trades_Mixed_Against_Majors_body_Picture_3.png, NZDUSD Gaps Lower Over Dairy Scares; USD Trades Mixed Against Majors

Charts Created using Marketscopeprepared by Kevin Jin

The GBPUSD is modestly higher by +0.29% at the time of writing. The cable began to edge higher at London Open and gains accelerated after the aforementioned strong PMI Services data.

EURUSD 15-minute Chart: August 5, 2013

NZDUSD_Gaps_Lower_Over_Dairy_Scares_USD_Trades_Mixed_Against_Majors_body_Picture_2.png, NZDUSD Gaps Lower Over Dairy Scares; USD Trades Mixed Against Majors

Charts Created using Marketscopeprepared by Kevin Jin

The EURUSD is slightly lower by -0.14% at the time of writing. The pair revolved around $1.3270 throughout most of the trading day before breaking lower around 10:30 GMT (6:30 EDT on chart above).

USDJPY 15-minute Chart: August 5, 2013

NZDUSD_Gaps_Lower_Over_Dairy_Scares_USD_Trades_Mixed_Against_Majors_body_Picture_1.png, NZDUSD Gaps Lower Over Dairy Scares; USD Trades Mixed Against Majors

Charts Created using Marketscopeprepared by Kevin Jin

The USDJPY is net lower by -0.40% at the time of writing, making the JPY the strongest major currency against the USD today. The pair broke below ¥99.00 during Asian trading down to 98.50, around where it has fluctuated throughout London and New York trading.

--- Written by Kevin Jin, DailyFX Research

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