US Dollar, US ISM, FOMC, Fed, RBA, VIX, Crude Oil, Gold, Bonds, FX, Volatility – Talking Points
- The US Dollar caught its breath today after a bumpy start to the week
- The RBA raised rates, triggering AUD/USD to run to higher ground
- Volatility sunk across equities, bonds, commodities and FX as ranges settle in
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The US Dollar steadied through the Asian session today after taking a tumble after some soft data.
The ISM services PMI survey results for May missed estimates, coming in at 50.3 rather than the 52.2 anticipated and 51.9 prior. This appears to have given the market further hope for a pause at Federal Open Market Committee (FOMC) meeting on Wednesday, June 14th.
Wall Street finished the cash session slightly lower and APAC equities have seen somewhat lacklustre trade, although Hong Kong’s Hang Seng Index (HSI) managed some decent gains.
The RBA raised its cash rate today by 25 basis points today to 4.10%. AUD/USD went half a cent higher in the immediate aftermath as interest rate markets had not factored in the move. The ASX 200 fell over 1% at the same time.
Treasury yields have barely moved so far today although the 1-year note remains near 23-year highs at around 5.25%.
The front-month COMEX gold futures bounced off an ascending trend line support overnight and it remains steady today above US$ 1,970.
Likewise, crude oil has quietened down after the fireworks seen on Monday after OPEC+ cut its production target again. The WTI futures contract is a touch under US$ 72 bbl while the Brent contract is near US$ 76.50 bbl. Updated commodity prices can be found here.
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With markets behaving as they are, volatility across many asset classes has taken a tumble. The widely watched VIX index, a measure of market-priced volatility on the S&P 500, dipped to its lowest level since November 2021 this week.
Similar measures of volatility across bonds, currencies, oil and gold have crumbled in the last few days. See the chart below. A lower level of volatility might lend itself to more range trading scenarios.
A potential contributing factor to the reduction in price fluctuations might be the resolution of the US debt ceiling issue over the weekend.
The focus for the market may turn toward the next FOMC meeting where the interest rate swaps and futures markets are not expecting a hike. They have placed a roughly 70% probability of a 25 basis point lift at the July meeting though.
Speculation around the rate path might be driven by data points going forward and could be the trigger for bouts of volatility.
The full economic calendar for data events can be viewed here.
CROSS MARKET VOLATILITY CHART – BONDS (MOVE), S&P 500 (VIX), OIL (OVX), GOLD (GVZ) AND FX (EVZ)
Chart created in TradingView
— Written by Daniel McCarthy, Strategist for DailyFX.com
Please contact Daniel via @DanMcCarthyFX on Twitter