Forex today: USD, rates higher, Fed minutes show concersn over financial stability

The FOMC minutes were at the forefront of traders minds when entering the US session today after yesterday's holiday. However, they were a letdown in respect of volatility and markets quickly moved on to establish what other risk events lied ahead. 

The FOMC minutes offered the following key points:

• Most Fed policymakers viewed recent softness in inflation data has had little bearing on inflation trend -minutes from June 13-14 meeting. 
• Several Fed policymakers saw a recent increase in import prices as consistent with inflation rising in the medium term.
• Several Fed policymakers were concerned recent softness in inflation might persist due to limited pass-through from resource utilisation.
• Several Fed policymakers wanted to announce start of balance-sheet trimming within a 'couple of months,' others wanted to wait until later in 2017 
• Fed Chair Janet Yellen suggested announcing new approach to balance sheet plan at June 13-14 meeting.
• Fed policymakers discussed possible reasons why financial conditions had not tightened following hikes in fed funds rate. 
• Almost all Fed policymakers supported June hike; one wanted to wait until inflation rose.

Focus will now be with Yellen’s Congressional testimony coming up next and for the time being, as a result of the minutes of the June meeting, the Fed funds futures odds are for an additional hike in 2017 are now at 60%.

Data today for the U.S. showed that May factory orders declined more than expected, while the final reading on durable goods orders showed a decline of 0.8%, matching preliminary data.

North Korea update

An additional theme to markets returning from the long week is the N.Korea situation. Alarmingly, N.Korea has warned that its ICBM can carry a nuclear warhead. Subsequently, the U.S. has called for global action and almost immediately announced a new joint military exercise with S.Korea. However, there does not appear to be support for military options by Japan, Russia, or China. 

President Trump was very vocal today when he criticised China for failing to be more proactive with regards to North Korea on its nuclear program. Markets will take note and risk assets should benefit as Trump re-evaluates the United States trade relationship with Beijing in light of the growing provocations from Pyongyang. There will be a gathering of major world economies this weekend where discussions about how to deal with the North Korean threat will be high on the agenda. Meanwhile, traders are keeping an eye on the Security Council ambassadors, along with the ambassadors from Japan and South Korea that are holding an open meeting on North Korea's latest missile test.

In respect to FX, the dollar is at 96.27 at the time of writing and up 0.05% on the session. US yields in the 10-yeear benchmark are at 2.3303% and down -0.83%. The euro is closing at 1.1344 and down -0.02%. The yen is at 113.20 and -0.07%. Sterling is closing at 1.2927USD and up +0.05%. USD/CAD is closing at 1.2971 and up +0.26% (WTI fell hard from $47.38 to $45.01). AUD is finishing at 0.7601USD and down -0.07% while the Kiwi is at 0.7288USD down -0.01%.

Asian day ahead

Aussie trade balance is the main event for traders to watch and continued developments/headlines around N.Korea.

Key notes from US session

• US Ambassador to UN: Countries trading with N.Korea are in violation of UN sanctions
• FOMC Minutes: Policymakers saw recent increase in import prices as consistent with inflation trend in medium term