Yen Aims Higher as Aussie, NZ Dollars Fall on Crude Oil Spike

The Japanese Yen is aiming higher while the Australian and New Zealand Dollars are underperforming as a spike in crude oil prices weighs on risk appetite.

Talking Points

• Yen Gains, Aussie and NZ Dollars Tumble as Oil Spike Drives Risk Aversion
• S&P 500 Futures Point to Continued Risk Aversion as Wall St Joins the Fray
• Pound Reaction to UK Services PMI to be Guided by BOE Policy Implications
• ADP, ISM Reports to Set the Stage for Friday’s US Nonfarm Payrolls Data

The sentiment-sensitive Australian and New Zealand Dollars underperformed in overnight trade as a spike in oil prices linked to political turmoil in Egypt weighed on investors’ risk appetite. The Aussie bore the brunt of the selloff, encouraged lower by a June’s Chinese Non-Manufacturing PMI report that showed service-sector activity expanded at the slowest pace in nine months. The Japanese Yen proved best-supported as the dour mood encouraged an unwinding of carry trades funded in the perennially low-yielding currency.

European shares are following Asian bourses lower in early trade and S&P 500 futures are pointing firmly lower, arguing for more of the same as Wall Street comes online. On the economic data front, the UK Services PMI gauge is in focus in European hours. Traders are likely to interpret the outcome in terms of setting the stage for tomorrow’s Bank of England policy announcement, with a relatively strong result likely to offer a lift to the British Pound and vice versa.

Turning to the US docket, markets will be looking to June’s ADP Employment data as well as the ISM Non-Manufacturing Composite gauge to set the tone for Friday’s closely-watched Nonfarm Payrolls print. Investors continue to read US economic news-flow in terms of its implications for the timing and size of Federal Reserve stimulus reduction. As such, soft results may help mitigate risk aversion and weigh on the US Dollar, while strong ones have scope to amplify the drop in sentiment and boost the greenback amid fears of a near-term cutback in policy support.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index

Asia Session:

Euro Session:

Critical Levels:

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, please CLICK HERE