ForexLive Asia-Pacific FX news wrap: Fitch Ratings downgrades the US to AA+ from AAA

Forex News FX

DOWNGRADE:

Other:

The
big news of the session hit just after 5pm New York time, Fitch (the
rating agency) downgraded US long-term debt (i.e. US government,
sovereign, bonds) to AA+ from AAA. As an aside, Fitch warned on this
back in May, citing the debt ceiling debacle and US governance
difficulties.

The
market response was slow. US equity index futures were down a touch
on
the news before
they closed. Upon reopening they gapped lower, but not by a huge
margin (pun intended). As I update ES and
NQ futures, while off their lows of the Globex session so far, have not filled in
the gap. FX markets were, of course, trading, but only New Zealand
and Australia were active, Australia only just. It was too early for
Tokyo (it
was before 7am),
Singapore and Hong Kong (before
6am)
FX markets,
and thus the lowest liquidity time of the 24-hour forex cycle. The
USD strengthened. EUR/USD traded to circa 1.1020, USD/JPY dropped
briefly to around 142.75. Both have since fully retraced.

The
New Zealand dollar has been an under-performer. The NZ Q2 employment
report showed unemployment coming in higher than in Q1 and above the
consensus expected.

In
central bank news we had the Bank of Japan June meeting minutes. And
also a speech from Deputy Governor Uchida in which he went to great
lengths to explain last week’s move on YCC was aimed at making the
Bank’s YCC more flexible and at maintaining easy policy, not
something with an eye on exit from easy policy.

In
oil news the privately surveyed inventory report said the latest
weekly headline draw was in excess of 15mn barrels, well ahead of the
circa 1.4mn draw that was the consensus expected. The weekly draw was
the largest for this survey for at least 4 decades. We await
confirmation from the official survey from the US Energy Information
Administration (EIA) due Wednesday morning US time.

Asian
equity markets:

  • Japan’s
    Nikkei 225 -1.8%

  • China’s
    Shanghai Composite -0.8%

  • Hong
    Kong’s Hang Seng -2%

  • South
    Korea’s KOSPI -1.4%

  • Australia’s
    S&P/ASX 200 -1%

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