Morning Commentary: Chain Reaction

Foreign Exchange - Morning Commentary
Chain Reaction
Share this story:
Alan Rose
Alan Rose
Foreign Exchange Senior Trader
With so much geopolitical uncertainty and a trade war rippling through the global economy, market psychology sees global interest rates moving in one-direction: lower. Investors continue to search for yield and safe havens during these uncertain times. In the background and feeding into this negative sentiment, global central banks have continued to move interest rates lower and apply all monetary tools available to keep interest rates suppressed.

But what happens when investors begin to lose their appetite to invest at these extraordinarily low yields and/or governments reduce their purchases of their own bonds? The market got a preview of that overnight when Japan had its worst bond auction in three years as investors balked at buying Japanese bonds which, combined with better-than-expected economic data (see below), squeezed Japanese interest rates higher and set off a chain reaction of higher interest rates across the globe.

U.S. interest rates have followed suit and are up sharply today following three days of declines and set off another bout of U.S. dollar buying. Despite the ongoing impeachment inquiry into President Trump, global investors continue to see the U.S. economy and the U.S. dollar as safe havens. The U.S. dollar (DXY) is up in four of the past five sessions and has made another new high for the year; even gold has fallen by nearly $80 over the past five sessions. Continue to expect the unexpected during these turbulent economic and political times.
  • The Aussie dollar is the weakest of the major currencies today. The Reserve Bank of Australia (RBA) cut interest rates as expected by 25 bps to 0.75%. This is the third time this year that the RBA has cut interest rates. The RBA’s message was dovish and stated that they are prepared to ease monetary policy further if needed to support sustainable growth. The Aussie dollar made another new low for this year after the announcement.
  • Japan reported better-than-expected economic data today. The UR fell from 2.3% to 2.2%. The key Tankan manufacturing index also beat expectations and even the non-manufacturing sector of this report came in better than expectations. Japanese 10-year yields jumped by 6 bps to -0.15%.
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog

Acquisitions or Alliances: What's Your Growth Strategy?