Fed Keeps to Higher Rate Path, DXY Flat; RBNZ Hike Lifts Kiwi

Yields Ease Despite Growing Inflation Fears, Equities Dip

Summary:

The Dollar Index (DXY), a popular gauge of the Greenback’s value against a basket of foreign currencies, closed steady at 104.22 (104.18 yesterday).

Minutes from the Fed’s recent FOMC meeting showed that nearly all policymakers favoured more rate hikes to tame rising inflation. The British Pound (GBP/USD), which outperformed yesterday, eased against the Greenback to 1.2030 from 1.2043.

The RBNZ (Reserve Bank of New Zealand) hiked its Official Cash Rate by 50 bps to 4.75% which was expected. This lifted the Kiwi (NZD/USD) 0.15% to 0.6232 (0.6218). The Aussie (AUD/USD) edged up to 0.6811 from 0.6807.

Against the other major currencies, the US Dollar was mixed. Global treasury bond yields edged lower. The benchmark US 10-year treasury rate dipped to 3.87% from 3.92%. Germany’s 10-year Bund yield slid 5 basis points to 2.47%.

The Dollar slid against the Japanese Yen to 134.72 from yesterday’s 134.87. The Euro (EUR/USD) eased to 1.0596 (1.0602). Traders saw the ECB’s references to inflation risks as more balanced.

Asian and Emerging Market currencies against the Greenback were mixed. The USD/CNH pair (Dollar-Offshore Chinese Yuan) gained modestly to 6.9160 from 6.9050 yesterday. Against the Indian Rupee (USD/INR), the Dollar slid to 82.60 from 82.85.

Wall Street stocks edged higher. The DOW closed at 33,095 (33,070) while the S&P 500 was last at 4,009 (4,003). Other global equities rose.

Economic data released yesterday saw Australia’s Private Capital Expenditure (q/q) climb to 2.2%, beating median estimates at 1.1%. The Eurozone’s Final Headline CPI (y/y) matched forecasts at 8.6%. Core EZ CPI (y/y) rose to 5.3%, against expectations of 5.2%.

US Preliminary GDP (q/q) eased to 2.7% from a previous 2.9%, matching median estimates (2.7%). US Weekly Unemployment Claims eased to 192K from 195K, and better than forecasts at 200K.

• AUD/USD – The Aussie Battler edged up to close at 0.6811 against yesterday’s open at 0.6807. Overnight high traded was at 06842, which was hit following the spike in the Kiwi (NZD/USD) after the RBNZ raised rates by 0.5%. Overnight low recorded was at 0.6781.
• NZD/USD – The Kiwi, otherwise known by traders as the Flightless Bird, grew its wings soaring to 0.6251 overnight from yesterday’s open at 0.6218. The NZD/USD pair finished in New York at 0.6812. The RBNZ raised its Official Cash Rate to 4.75% from 4.25% as expected.
• EUR/USD – The shared currency finished in New York at 1.0596 against yesterday’s 1.0602. In volatile trade, the Euro tumbled to a low at 1.0577 before steadying at the close. Overnight high recorded was at 1.0628.
• USD/JPY – Against the yield sensitive Japanese Yen, the Dollar slid to 134.70 in late New York from 135.00. The fall in the US 10-year bond yield to 3.87% from 3.92% weighed on the Greenback vs the Yen. Overnight low traded was at 134.50. The overnight high recorded was at 135.37 in choppy trade.

On the Lookout:

Today’s economic calendar picks up with the US releasing its latest monthly Core PCE Price Index. Economists are forecasting a rise to 0.4% from 0.3%. Prior to that, Japan kicks off today’s data releases with its Annual Core CPI (y/y). Analysts are looking for a rise to 4.3% from 4.0% previously. The UK reports on its GfK Consumer Confidence data, forecast at -43 from a previous -45. The Euro area sees the release of German Final GDP (q/q f/c at -0.2% from -.02%), German GfK Consumer Climate (f/c -30.6 from -33.9). Finally, the US reports its Core PCE Price Index for January  (m/m f/c  f/c 0.4% from from 0.3% - ACY Finlogix); US January Personal Income (m/m f/c 1.0% from 0.2% - ACY Finlogix); US January Personal Spending (m/m f/c 1.3% from -0.2% - ACY Finlogix); and US January New Home Sales (f/c 620K from 616K – ACY Finlogix). Finally, the US releases its Final February Michigan Inflation Expectations (f/c 4.2% from 3.9% - ACY Finlogix) and US Michigan Final Consumer Sentiment (f/c 66.4 from 64.9 – ACY Finlogix).

Trading Perspective:

The US Dollar will maintain its advantage against its rivals given the hawkish FOMC outlook and expected stronger economic data releases today. The risk would be for a disappointment on the data as well as position squaring ahead of the weekend. Price action and sentiment have favoured the US Dollar over the global currencies. Which would make for a volatile finish to this week in the FX markets. Keep those tin helmets on and get ready for another roller coaster ride. Happy days!

• AUD/USD – The Aussie Battler held its own against a bid Greenback, finishing steady at 0.6811 (0.6807). Buoyed by its smaller cousin, the Kiwi, the Australian Dollar has good and immediate support at 0.6780, near its overnight low. A break of 0.6780 could see 0.6730 and lower. On the topside, look for immediate resistance at 0.6840 to cap any rallies. A break above 0.6840 would see 0.6870 and 0.6900. Expect a choppy session in the Aussie with a likely range of 0.6770-0.6830. Content to trade the range, although the specs appear short.
• USD/JPY – Easing US bond yields weighed on the Greenback against the Yen, which settled 0.32% lower to 134.72 from 135.00. Overnight, the Dollar traded to a low at 134.50 before steadying. Immediate support today lies at 134.70 followed by 134.40. On the topside, look for immediate resistance at 135.10 and 135.40 to cap any rallies. At the end of the day, the US bond yields will determine the next move for this currency pair. Today, expect a trading range of 134.50-135.50. Look for a likely trading range of 134.50-135.50. Prefer to buy on USD/JPY weakness.
• GBP/USD – Sterling lost steam against an overall bid US Dollar, settling at 1.2030 from 1.2043 yesterday. Overnight low traded was at 1.1992. Today, look for immediate support at 1.2000 followed by 1.1970. Immediate resistance is found at 1.2060 followed by 1.2090. Look for the British currency to trade in a likely range today of 1.1980-1.2080. Trade the range, nice and wide.
• EUR/USD – The shared currency rose marginally against the Greenback, finishing at 1.0602 (1.0596 yesterday). A more hawkish FOMC took the steam out of the Euro’s rally, only just. Overnight high traded for the EUR/USD pair was at 1.0628. Look for immediate resistance today at 1.0630 followed by 1.0670 and 1.0700. On the downside, immediate support can be found at 1.0575 and 1.0545. Look for the Euro to trade in a likely range today of 1.0570 to 1.0630. While there may be room for more downside in the Euro, would be wary of pushing it too low. The speculators appear short.

Happy Friday to all and a top weekend too.

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