The US Dollar Up Everything Else Down

Wall Street traded lower over the course of the trading session on Friday amid renewed concerns about the outlook for interest rates. The Dow and the S&P 500 tumbled to two-month closing lows, while the Nasdaq hit its lowest closing level in well over a month.

Comments from Boston Fed President Eric Rosengren helped to contribute to the selloff. In a speech on Friday, Federal Reserve Bank of Boston President Eric Rosengren suggested a case could be made for the central bank to raise its key interest rate sooner rather than later. The Dow Jones closed down 394.46 points, or 2.1%, at an intraday low of 18,085.45. Atlanta Fed President Lockhart and Minneapolis President Kashkari and Fed Governor Lael Brainard are scheduled to speak today ahead of the blackout period.

The European markets ended Friday’s session firmly in negative territory. Continued disappointment over the inaction of the European Central Bank weighed on investor sentiment. Weak economic data from Germany and France, along with disappointing Chinese inflation data, added to the negative mood.

Asian shares opened in the red on Monday morning tracking a lower close on Wall Street Friday amid concerns that the US Fed become less accommodative after officials signaled that the central bank could hike rates at its September review meeting.

Asian markets are down with Japan’s Nikkei down 1.5% while China’s Shanghai is down 1.69%. U.S. stocks plunged after Federal reserve officials signaled the U.S. central bank could hike interest rates as soon as this month, led by losses in industrials and energy shares.

This morning was a big morning for Japan with PPI missing expectations and CORE machinery orders printing better than expected.  The Japanese yen gained 20 points to 102.52 holding near its lowest trading level against the US dollar. Yen traders are preparing for the all-important Bank of Japan conference next week scheduled on the same day as the Federal Reserve. The BoJ will try to clarify its outlook on monetary policy at this meeting amid growing signs that officials are split on the size and scope of future stimulus efforts.

The Bank’s “comprehensive assessment” of policy will try to give a clearer view of the expectation of the central bank in regards to monetary easing and negative interest rates. Governor Haruhiko Kuroda and Deputy Governor Hiroshi Nakaso will explain why the Japanese economy is still on pace for 2% inflation and how the Bank will handle negative interest rates in the future.

There is very little data due for the balance of the day leaving traders to deal with emotions, the US election and rumors. In Asian this morning both the kiwi and the Aussie took big hits continuing their down slides sparked by the rising US dollar on Friday. The NZD is trading at 0.7319 and the AUD at 0.7532. Like the movements in stocks, bonds and commodities, the substantial decline in the Aussie on Friday — some 1.34% — was driven by remarks from a leading US Federal Reserve that hinted that a September rate increase from the FOMC may not be so implausible after all.

The US dollar is down 5 points in the morning session at 95.28 and but is expected to recover and trade in the green after FOMC speakers finished the day off.