Dollar does more damage before pullback

The US dollar hit some fresh long-term highs but a late-day pullback may have dulled the near-term momentum. On the day the euro was the top performer while the Australian dollar lagged. Japanese PPI and machine orders are due later. Our latest Premium Insights issued 2 new trades on NZDUSD. The pair has dropped in 8 out of the last 9 weeks and most NZD traders expect RBNZ to hold rates unchanged on Thursday. Is there more room for NZD declines?  See today's Premium Insights.

The US dollar bulls began to charge again on Tuesday and were able to do some technical damage. USD/JPY rose to a fresh cycle high of 106.46; USD/CAD finally broke 1.10 and AUD/USD fell below 0.9200 to the lowest since November.

But what happened afterwards might have raised some red flags. USD/JPY later fell to a US low of 106.05, AUD/USD rebounded from the 200-dma at 0.9200 and USD/CAD closed at 1.0980.

The catalyst for the US dollar selling was weakness in the S&P 500 as stocks posted their worst day in a month and the index finished at the worst level since Aug 22. The move was more about Apple than the macroeconomy so it might be a one-off.

The lone economic data point was the US JOLTS report and it showed job openings in July near the highest levels since 2001 – a sign that the fall in non-farm payrolls was likely temporary.

The two market moves that will keep us thinking are in the euro and aussie. The euro finally staged some kind of bounce as it traced up to 1.2958 from as low as 1.2860. Is a 100-pip bounce enough to sell?

The selling in the Australian dollar was a bit of a mystery because there were no headlines behind it. The underlying issue might be weakness in emerging markets. Moody's cut Brazil's outlook after it fell into recession and USD strength may cause problems in the developing world.

Technically, AUD/USD is now crippled and the potential for a range breakdown is a worrisome signal. Tomorrow's Aussie jobs figures will be key.

The focus shifts to Japan at 1950 GMT with reports on the PPI for August and machine orders for July. The latter report interests us more and we'll be watching to see if it can hit the 0.5% y/y expected.