Dollar Eases, US Annual CPI Cools; Fears Loom on SVB Collapse

Stocks Climb, Bond Yields Rebound, USD/JPY, AUD. EMFX Rally

Summary:

Wall Street stocks finished higher with the US S&P 500 recovering most of what it lost. The US annual inflation (CPI) slowed to 6% in February from 6.4% in January. Monthly inflation rose by 0.4% in line with expectations. Risk sentiment improved.

Global bond prices slumped following their rally yesterday. Treasury yields rebounded. The US 10-year bond yield climbed 11 basis points to 3.65%. Germany’s 10-year yield soared to 2.41% (2.25%).

Fears from the fallout of the Silicon Valley Bank collapse continued to climb for the health of the broader financial system. Signature Bank, a New York financial institution, shut its doors on Monday.

The Dollar Index (USD/DXY), a favourite gauge of the Greenback’s value against a basket of 6 major currencies, dipped to 103.25 from 103.30 yesterday.

The USD/JPY pair rebounded to 134.20 from 133.30 yesterday. Risk leader, the Australian Dollar (AUD/USD) steadied to 0.6680 (0.6651). New Zealand’s Kiwi (NZD/USD) edged up to 0.6233 (0.6213).

The Euro (EUR/USD) gained to 1.0740 from 1.0717 yesterday. The European Central Bank (ECB) is widely expected to raise its Main Refinancing Rate to 3.5% from 3% when they meet tomorrow.

Sterling (GBP/USD) edged up to 1.2172 (1.2160). The British Pound remained in a tight range around the 1.2160 level. The UK’s Unemployment Rate was unchanged at 3.7%, bettering forecasts at 3.8%.

Against the Asian and Emerging Market currencies, the US Dollar was mostly lower. The USD/CNH pair (Dollar-Offshore Chinese Yuan) slid to 6.86 against 6.9390 yesterday. USD/SGD (Dollar-Singapore Dollar) dipped to 1.3482 from 1.3502 yesterday.

Other economic data released yesterday saw Australia’s National Australia Bank Business Confidence drop to -4 from a previous 6. The Eurozone Industrial Production (m/m) slid to -0.7% against forecasts at -0.3%. Canada’s Manufacturing Sales (m/m) rose to 4.1% from a previous -2.1%.

The UK’s Claimant Count Change (number of people claiming unemployment related benefits) fell to -11,200 against expectations for a rise to 12,500.

• AUD/USD – The Aussie Battler (AUD/USD) rebounded to 0.6680 from yesterday’s open at 0.6651. Improved risk sentiment supported the Australian Dollar. In choppy trade, the overnight low recorded was at 0.6625 while the overnight high saw 0.6696.
• USD/JPY – The Greenback rebounded against the yield sensitive Japanese Yen to 134.20 (133.20) as US treasury yields soared and bond prices fell. Overnight, the USD/JPY traded to a high at 134.90 before sliding at the close. Trade was volatile with the overnight low recorded at 133.02.
• EUR/USD – The shared currency rallied against a generally weaker US Dollar to 1.0740 from 1.0717 yesterday. With the ECB widely expected to hike rates by 50 bps at the conclusion of their meeting tomorrow, market are now focussed on the Press Conference that follows. Overnight low recorded was at 1.0679 in volatile trade.
• GBP/USD – Sterling rallied against the generally weaker US Dollar to 1.2172 from 1.2160 yesterday. Overnight, the British Pound slumped to a low at 1.2137 before rebounding at the close. In choppy trade of its own, the overnight high traded was at 1.2208. Generally better than forecast economic data out of the UK supported Sterling.

On the Lookout:

New Zealand kicked off today’s economic data releases with its Current Account Deficit which eased to -NZD 9.46 billion from a previous upward revised -NZD 11.40 billion (-NZD 10.21 billion). The Kiwi (NZD/USD) was little changed at 0.6232 followed the release.

China follows with its trifecta of data; Industrial Production (y/y f/c 2.6% from 1.3% - ACY Finlogix), Retail Sales (y/y f/c 3.5% from a previous -1.8% - ACY Finlogix) and Fixed Asset Investment (YTD) y/y f/c 4.4% from 5.1% (ACY Finlogix). China also releases its February Unemployment Rate (f/c 5.5% from 5.5% - ACY Finlogix). Germany starts off Europe with its February Wholesale Prices (m/m f/c 0.6% from 0.2%; y/y f/c 8.9% from 10.6% - ACY Finlogix). France follows with its February Inflation Rate (m/m f/c 0.9% from 0.4%; y/y f/c 6.2% from 6% - ACY Finlogix). Canada kicks off North America with its February Housing Starts (f/c 220K from 215.4K – ACY Finlogix). The UK release is Spring Budget 2023 (11.30 pm Sydney). The US rounds up today’s data releases with its February Headline PPI (m/m f/c 0.3% from 0.7%; y/y f/c 5.4% from 6% - ACY Finlogix), US February Core CPI (m/m f/c 0.4% from 0.5%; y/y f/c 5.2% from 5.4% - ACY Finlogix), US February Headline Retail Sales (m/m f/c -0.3% from 3%; y/y f/c 4.3% from 6.4% - ACY Finlogix), US Core Retail Sales (m/m f/c -0.1% from 2.3% - ACY Finlogix).

Trading Perspective:

A general improvement in risk appetite enabled US stocks to recover and advance following Monday’s volatile session which was dominated by the US regional bank crisis. An easing in the US Annual inflation (CPI) which saw a cooling to 6% in February, down from January’s 6.4% steadied equities. Bond prices tumbled and yields rebounded.

Focus today will be on Asia with the release of China’s trifecta of economic data, Retail Sales, Industrial Production and Fixed Asset Investment. Forecasts (see On the Lookout above) are for a marked improvement in all three releases. The US releases its February PPI and Retail Sales reports. The latest data releases will likely see the Federal Reserve increase interest rate by 25 bps following its meeting on March 23.

Expect another choppy day in FX with key economic data releases and the ongoing SVB turmoil.

• AUD/USD - While the Australian Dollar managed to rebound overnight, risk appetite remains shaky. Which will weigh on the Battler and keep the topside limited. For today, look for immediate resistance at 0.6700 (overnight high traded was at 0.6696), and 0.6730 to cap. Immediate support can be found at 0.6640, 0.6610 and 0.6580. Look for a choppy start with a likely range of 0.6630-0.6730. Trade the range, the preference is to sell rallies.
• USD/JPY – The drop in bond prices and rally in bond yields supported the Dollar against the Yen. For today, immediate resistance is found at 134.30, followed by 134.60 and 134.90. On the downside look for immediate support at 133.70, 133.40 and 133.10. Look for another choppy ride in this currency pair, likely range between 133.20-134.70. Trade the range, nice and wide.
• EUR/USD – The shared currency gained against the overall weaker Greenback to 1.0740, up from yesterday’s 1.0717. Overnight high traded for the Euro was at 1.0750 which forms today’s immediate resistance. The next resistance level lies at 1.0780 followed by 1.0810. Immediate support can be found at 1.0710, 1.0680 and 1.0650. Expect a likely trading range today of 1.0650-1.0750. Prefer to sell rallies.
• GBP/USD – The British Pound steadied following Monday’s drop to 1.1907, to 1.2175 in late New York against 1.2160 yesterday. Overnight high traded was at 1.2208 while the overnight low recorded was at 1.2136. Immediate resistance on the day lies at 1.2210 followed by 1.2240. Immediate support can be found at 1.2130, 1.2100 and 1.2070. Look for more choppy trade in a likely range today of 1.2120-1.2220. Prefer to sell rallies to 1.22 today.

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