US Dollar Index bounces by yearly lows; more upside potential RBA leaves rates on hold as was widely expected at 4.75% Yen and Swissie find offers after trading to record highs US debt ceiling developments still being digested Eurozone structural concerns resurface Aussie and Kiwi finally showing weakness The US Dollar has been well bid overall in the early week, with the price action resulting in a favorable close off of the yearly lows in the US Dollar Index. The only other currencies that have shown better bid in recent trade have been the other safe haven currencies in the Swiss Franc and Yen, which both trade just off recently established record highs against the Greenback. Still, even the Yen and Swissie could be exposed to some significant weakness ahead against the buck, with both of these currencies looking extremely stretched. Relative Performance Versus the USD on Tuesday (as of 10:45GMT) CHF +0.56% CAD +0.08% GBP -0.12% JPY -0.13% NZD -0.22% EUR -0.40% AUD -0.89% Markets had initially been well bid on Monday on the news of a resolution to the US debt ceiling talks, with risk correlated assets rallying impressively, before finally reversing quite sharply into North American trade. A combination of concern over the type of resolution achieved by the US government, softer US economic data, and widening Eurozone peripheral bond spreads, all contributed to the risk off trade, with US equities getting hit rather hard. We also started to finally see some relative weakness in the antipodean currencies, with both Aussie and Kiwi rolling over from post-float record high levels and putting in bearish closes against the Greenback. The Australian Dollar has actually been the hardest hit currency on the day, with the relative weakness stemming from the overnight central bank decision. The RBA came out early Tuesday leaving rates on hold at 4.75% as was widely expected, with the accompanying central bank statement maintaining its newly adopted less hawkish outlook. The central bank continued to express concern over broader global macro threats and some worrying deteriorative local fundamentals, and this resulted in the latest drop off below some inter-day stops at 1.0900. On the data front things were also not Aussie supportive with a softer building approvals adding additional strain to the antipodean. In the European session, the risk off trade resulted in yet another drop to fresh record lows in Eur/Chf (see below), with the risk off trading environment and some solid Swiss economic data influencing the price action. Swiss retail sales and PMIs were strong, while other data in the session included slightly better UK construction PMI and generally in line Eurozone producer prices. Looking ahead, economic releases in the North American session are few, but much of the attention will already be focused on the debt ceiling vote in the Senate at 16:00GMT. US equity futures and oil prices are tracking lower, while gold continues to consolidate just off record highs.

Source