Forex today: "An act of war" spun markets around into risk-off late trade
"An act of war" was the dominating announcement from N.Korea in the latter part of the US session, sending gold, the Swiss franc and the yen shooting higher.
N. Korea's Foreign Minister stated in a press conference that US rhetoric from the United States is a declaration of war and it is within its rights to shoot down US planes and sparked a risk-off theme to markets again.
Behind such scenes, the dollar was still bid, with the dollar index rising by 0.5% to a three-week high among mixed Fed speak, although was propped by a bullish Fed's Dudley and the prospects for the US healthcare bill being completed before the September 30th deadline. Trump is also scheduled to announce details on Wednesday around the tax cut bringing back the Trump trade to the table. US yields in the benchmark ten-year fell from 2.26% to 2.21% while the Fed fund futures yields show there is a chance of a December rate hike at 71%.
Meanwhile, the euro was under pressure from the results of the German elections with Merkel losing around 10% of her previous support along with ECB's Draghi suggesting her is in no hurry to remove accommodation. EUR finished down-0.91% at 1.1848 from 1.1936 the high. Sterling finished -0.31% at 1.3467 from a high of 1.3571 and supported on a dovish Fed Evans. USD/JPY was down -0.24% to 111.71 from a high of 112.52 and the Swissy traded at a 0.9644 low from 0.9745. Gold rallied from 1289.46 to 1312.28 the high.
Commodity currencies were lower on yield spreads to that of the US and pressured in the risk-off tone towards the end of the US session against a backdrop of lower metal prices. AUD fell -0.21% to 0.7936 and made a low ten pips lower. The kiwi was hurt by over 1% hitting a low of 0.7252 and closing ten pips higher. The Loonie was 0.26% lower vs the dollar with USD/CAD making a high of 1.2369 with a rally in WTI to $52.38bbl.
Key events ahead in Asia
Analysts at Westpac noted the key risk events ahead in Asia:
"NZ: the Aug trade balance is expected to fall from a small surplus to -$825m due to seasonal effects. Business confidence (ANZ) has trended sideways at a moderately elevated level around 20 during the past 18 months.
Australia: RBA Assistant Governor (Financial Stability) Bullock participates in a panel at the “Where to from here?” briefing hosted by Landers & Rogers and Westpac, 7:15 AM Sydney time."
Key notes from the US session
- Wall Street closes lower as geopolitical tensions resurface
- New Zealand trade balance coming up, but watching coalition decision - ANZ
- WTI climbs to the highest since April above $52.00
- Fed's Evans: Probably takes more than a couple months to see change in inflation outlook
- Pentagon: Will provide Trump options if North Korea provocations continue - Reuters
- ECB’s Draghi: ECB must be sensitive about not halting the recovery