Summary:

• US dollar gains ground in the morning, euro back below 1.24 once again
• Australian dollar tries to resist USD strength being slightly supported by RBA minutes
• Asian equities lower on the day as the US 10Y yield kicks off the new week several basis points higher

US traders are back after a holiday on Monday and it could be conducive to the greenback which is trading broadly higher in the morning. Rises are quite widespread as the USD is up ca. 0.2% against all its major peers except for the Australian dollar. Yesterday, we pointed out the possible long-term driver of the EURUSD strength, however, at the same time we outlined a possible correction scenario for the pair. The main reason why the US dollar may gain ground in the near-term is its short-term undervaluation and a streak of better than expected reading from the domestic housing market as well as consumer confidence on Friday. Having said that, the long-term outlook for the buck remains fairly gloomy partly on the back of the ’twin deficits’ which may play a significant role going forward.

The US dollar index (USDIDX on xStation5) is nearing its crucial resistance in form of an upper boundary of a channel. So, if bulls want to continue their move, they need to break it out allowing themselves further gains at least toward 90.5. Source: xStation5

We mentioned the Australian dollar which has been able to resist the greenback strength so far (it’s trading 0.15% higher on the day at the time of writing). The prime reason is the account of the latest RBA meeting even as it did not include any fresh remarks of note. The Bank stressed that inflation is anticipated to be rising just gradually (2.25% is projected by mid-2020) while wage growth has been subdued despite strong employment. The minutes reiterated the rising AUD would impede a pick-up in economic growth and inflation. The Reserve Bank of Australia noted that a larger increase in household income is needed to support consumption and risks to that backdrop seem to be tilted to the downside. While the Bank said that the housing market conditions have generally eased, it underlined that high household debt levels still warrant careful attention (read: the Bank is unlikely to be in a hurry to rise rates in the foreseeable future). Overall, the minutes did not change the rates outlook at all and there is still no urgency to tighten policy nowadays.

The AUDUSD is eyeing an important supply zone at around 0.7975, however, it may fail to break above it if demand for US dollars persist. Source: xStation5

Monday was a holiday in the US, hence both equity and debt markets were closed. After the reopening on Tuesday the US 10Y yield is trading at 2.9% (up 3 bps compared to the Friday’s close) and it could be the US dollar positive at least in the short-term. On top of that, one needs to mention Asian stock markets which saw quite a mixed day. While the NIKKEI (JAP225) closed down 1%, the Australian S&P/ASX (AUS200) did not move at all. US futures are trading at around a break even line right now therefore one should expect the flat beginning across Europe.