The broader markets have a minimal appetite for holding risk so it seems the US dollar is the go-to hedge trade. And the dollar bounce is getting compounded by loads of short covering as I think the world is still short dollars into the quarter-end and month-end. So perhaps some early month-end housekeeping and rebalancing are coming to the fore. No one wants to pay the turn and with the NDX down huge on the month, suggesting some sizeable dollars need to be bought for rebalancing perspective, why not get ahead of the curve. After all Sept. 29 is the first US election debate and might clear up a few concerns around US political risk.
Stock markets are spinning wheels within wheels, trying to regain their prime axis. But in general, concerns about a possible new wave of lockdowns as coronavirus infections spike around the world is just tough to shake off.
A stronger dollar tells me no one is looking to strap on risk assets. So In the absence of a vaccine, the oil demand recovery has run its course, and the resurgence of COVID-19 is worrying, but governments will be reluctant to impose full lockdowns again. The latter is a double-edged sword as empowering people to social distance could keep the economy open. Still, the piper could come knocking if the curve spikes again. There are two ways to slice the cheese when looking to trade oil this week
Gold is getting hammered due to the strong dollar, and as the Fed is not interested in negative rates, so it will be up for a tough challenge as positions remain chunky as we approach $1880. Don't look below it could be a steep fall
Forex
FX market relationships come and go, and these days the change almost weekly, but there has been a discernable shift with regards to G-10 sensitivities in recent months. While the broad USD still matters a lot for G10 currencies, the RMB pull is becoming stronger and may become a more powerful influence for G-10 over the next few months, especially for the AUD and the EUR. Indeed, todays weaker Yuan fix certainly suggests that seems to be the case as PBoC daily setting triggered a wave of US dollar buying across the board in Asia this morning.
Despite the US-China 'Phase 1' trade deal, the trade war's underlying tensions never really went away. In part, political pressures from COVID-19 have manifested into a tech war as both superpowers now compete for technology dominance and absolute control over the internet. Biden's presidency's only difference is his pressure on China will be more predictable and not like the Trump administrations' left-field tendencies.
The RBNZ left its critical monetary policy settings unchanged (cash rate at 0.25% and the LSAP program at NZD100 bn), as expected. The RBNZ's economic outlook struck a somewhat downbeat note, with the balance of risks still tilted to the downside. Indeed, this suggests the central bank remains set to maintain an ultra-accommodative stance for the foreseeable future (including considering negative interest rates), which points to NZD downside in FX, and a lesser extent, in yields.
AUD/NZD is offered this morning due to Westpac's sell-side analyst expectations for an RBA rate cut at its Oct. 6 meeting.