Dollar Extends Gains into FOMC Meet; Gold, Metals Tumble

Aussie Falls Ahead of Chinese Trifecta Data; USD/JPY Soars 

Summary:

Gold prices slumped anew to USD 2,155 per ounce from USD 2,163 on Friday, and USD 2,184 a week ago, boosting the US Dollar up against its Rivals. 

A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) extended its gains to 103.05, up from Friday’s opening at 102.40. 

US Treasury Yields edged up with the benchmark 10-year rate settling at 4.31% (4.29% Friday). The two-year US treasury bond yield gained 4 basis points to 4.73%. Other global yields rose but to a lesser extent than that of their US counterparts.

Market expectations for a Federal Reserve rate cut in June were dampened by a stronger US PPI result last week while US Manufacturing Production rose in February (see below). 

Wall Street stocks eased. The DOW finished at 38,750, down from Friday’s opening at 38,800. The S&P 500 eased 0.5% to 5,125 (5,145 Friday). Japan’s Nikkei rose to 39,000 (38,570). 

Lower Gold prices weighed on the Australian Dollar (AUD/USD), which slid to close at 0.6560 from Friday’s 0.6590. New Zealand’s Kiwi (NZD/USD) tumbled to 0.6085 (0.6125). 

The US Dollar extended its rally against the Japanese Yen (USD/JPY) to 149.04 at the New York close, up from its 148.30 open on Friday. In choppy trade, the Greenback saw a low at 147.43. 

Sterling (GBP/USD) eased against the overall stronger US Dollar, settling at 1.2730 from 1.2750 Friday. UK Consumer Inflation Expectations dropped to 3.0% from 3.3% previously.

The Euro (EUR/USD) dipped to 1.0880 in late New York trade (1.0900 Friday). On Friday, ECB policymaker Olli Rehn said that “we’ve started discussion about reducing restrictive dimension of monetary policy.” Rehn was referring to when it is appropriate to start cutting interest rates. 

Against the Asian and Emerging Market Currencies, the Greenback finished higher. The USD/CNH pair climbed to 7.2050 from 7.2000. The US Dollar edged up against the Singapore Dollar (USD/SGD) to 1.3365 (1.3355). USD/THB (Dollar-Thai Baht) was up to 35.90 (35.75). 

Economic data released Friday saw New Zealand’s Business NZ PMI climb to 49.3 in February, up from January’s 47.5, beating expectations at 48.1.

China’s House Price Index in February slumped -1.4% annually, down from a previous -0.7%, and missing estimates at -0.3%. China’s February New Loans fell to CNY1450B from CNY4920B. 

In Europe, Italy’s January Retail Sales (m/m) rose to 1%, up from -0.1%, and beating forecasts at 0.2%. France’s Annual CPI dipped to 3.0% from 3.1% previously, beating estimates at 2.9%.

US February Manufacturing Production rose to 0.8% from -0.5% previously, beating forecasts at 0.3%. Preliminary University of Michigan Consumer Sentiment dipped to 76.5 (76.9).

AUD/USD – The Aussie Battler was pummeled anew following weaker-than-expected Chinese house prices and a fall in China’s New Loans data. The weak data, coupled with the slump in iron ore prices pushed the Aussie to close at 0.6560 from 0.6620 Thursday. The Aussie tumbled to an overnight low at 0.6552. The overnight high traded was 0.6610.USD/JPY – The US Dollar rebounded against the Japanese Yen, settling at 149.04 at the New York close, up from 148.28 previously. In another volatile trading session, the Greenback saw an overnight high of 149.16 while the overnight low traded was 148.03.EUR/USD – the Euro eased against the US Dollar, closing at 1.0880 from 1.0900 Friday. The shared currency slid to an overnight low at 1.0873. The overnight high recorded was at 1.0900. Comments from ECB’s Rehn and a strong Greenback weighed on the Euro.AUD/USD – The Aussie Dollar remained on the defensive after iron ore prices tumbled last week. Lower Chinese economic data (House Prices and New Loans) weighed on the Australian Dollar. The data highlighted the storm that is engulfing China’s property sector. Australia relies heavily on Chinese demand for Iron Ore, its largest export.GBP/USD – Sterling dipped against the US Dollar, closing at 1.2730, down from Friday’s opening of 1.2750. The British Pound traded to an overnight high at 1.2759 while the overnight low recorded was at 1.2717.On the Lookout:  

The highlight for the week ahead is the outcome of several central bank policy meetings. The Bank of Japan, Reserve Bank of Australia, Swiss National Bank, Bank of England, and US Federal Reserve all meet on policy this week. Today kicks off with New Zealand’s February Services PMI (f/c 52.9 from 52.1 – ACY Finlogix). Japan follows with January Machinery Orders (m/m f/c -1% from -2.7%; y/y f/c -11.2% from -0.7% - ACY Finlogix). 

China follows with its trifecta of Retail Sales (y/y f/c 5.2% from 7.4% - ACY Finlogix), Chinese Industrial Production (y/y f/c 5% from 6.8% - ACY Finlogix), and Chinese Fixed Asset Investment (y/y f/c 3.2% from 3.0% - ACY Finlogix). China also releases its February Unemployment Rate (f/c 5.1% from 5.1% - ACY Finlogix) and Chinese February Foreign Direct Investment (FDI) (y/y f/c -19% from -11.7% - ACY Finlogix). Europe kicks off with the Eurozone Final February Inflation Rate (y/y f/c 2.6% from 2.8% - ACY Finlogix), Eurozone Final February Core Inflation Rate (y/y f/c 3.1% from 3.3% - ACY Finlogix), and Eurozone January Trade Balance (f/c +EUR 20 billion from +EUR 16.8 billion).

Canada kicks off North America with its Canadian February PPI (m/m f/c 0.3% from -0.1%; y/y f/c -2.0% from -2.9% - ACY Finlogix). The US rounds up today’s busy calendar with its US March NAHB Housing Market Index (f/c 48 from 48 – ACY Finlogix).

Trading Perspective: 

The Dollar extended its gains versus its Rivals ahead of this week’s central bank meetings and outcomes. This week’s highlight will be the conclusion of the US Fed’s FOMC policy meet (Thursday, 21 March). Other central banks meeting this week are the Reserve Bank of Australia (Tuesday, 19 March), Bank of Japan (Tuesday, 19 March), Swiss National Bank (Thursday 21 March), and Bank of England MPC (Thursday 21 March). Expect more fireworks and volatility this week, starting with the release of China’s trifecta of economic data today. While market expectations for a Fed Rate cut in June were dampened by stronger-than-expected US economic data, this week sees uncertainty with the outcomes of several central bank meetings. Today the focus is on the trifecta of Chinese data. 

AUD/USD – expect more fireworks on the Aussie today given the focus on Chinese data. On the day, the Aussie Battler has immediate support at 0.6530 followed by 0.6500 and 0.6470. Immediate resistance can be found at 0.6580 (overnight high traded was 0.6579). The next resistance level lies at 0.6610 and 0.6640. Look for more choppy trade in the Aussie today, likely between 0.6520-0.6620. Prefer to sell Aussie rallies. USD/JPY – The Greenback rebounded against the Japanese Yen supported by the rise in US bond yields. Yen traders should continue to monitor the US treasury markets. Look for immediate resistance today at 149.30 and 149.60. The 150.00 resistance level is formidable.  On the downside, immediate support lies at 148.70, 148.40 and 148.10. Look for more choppy trade today, likely between 148.70-149.70. Trade the range.EUR/USD – the shared currency retreated against the broadly based stronger Greenback to close at 1.0880 in late New York. Look for immediate support today at 1.0850 followed by 1.0820. On the topside, immediate resistance can be found at 1.0880 followed by 1.0910 and 1.0940. Look for consolidation today in a likely range of 1.0830-1.0930. Prefer to sell Euro on strength.GBP/USD – Sterling slid against the US Dollar to 1.2730 at the New York close. On the day, look for immediate support in the British Pound at 1.2700 followed by 1.2670 and 1.2640. On the topside, immediate resistance lies at 1.2760, 1.2790 and 1.2810. Look for the British Pound to consolidate in a likely range today of 1.2670-1.2770. The preference today is to sell Sterling on strength.Happy Monday and trading all. Have a good week ahead.  

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