US dollar resurgent as Yellen says rate rises are coming

Quick Recap

Crude crashed, iron ore was poll-axed and the Aussie dollar is losing support faster than Brendan McCullum lost his wicket in yesterday’s World Cup Cricket final. Add in the fact that Janet Yellen joined the chorus of inlfuential policy makers in the US saying rates ARE going up this year in the US and you get a backdrop which is helpful for the US dollar.

That’s exactly what we saw, even though the third read of US Q4 GDP under shot hopes that it would be upgraded to 2.4% annualised holding steady at 2.2%. In many ways tonight’s release of Personal Income, and Expenditure is more urbane to the discussion around the when of the first Fed tightening than last year’s GDP. Indeed, the message from Yellen is that she is going this year regardless of whether inflation is at 2%.

Worth noting is that once again she gave a clear and explicit lead that its not the “when” of the first Fed hike but what happens subsequent to that. The ‘how much’ and over ‘what time frame’ that matters. That implies, as Stanley Fischer said last week, that the Fed hikes are not going to be a linear progression back to 4%.

That should temper US dollar bullishness somewhat. But as the PBOC Governor said yesterday the QE being undertaken around the globe means that the pressure is on the US dollar to appreciate and that it may end up “too high”. He also warned of asset price bubbles as a result and talked about China’s own wrestle with deflation. Shanghai stock traders might like that because it means more stimulus.

But more stimulus doesn’t seem to be able to the iron ore price which is crashing once again. I wrote about it this morning at Business Insider. But it seems to me that Andrew Forrest may have kicked an own goal with his thought bubble about working co-operatively with other iron ore producers to halt the precipitous price fall.

That is also putting pressure on the Aussie dollar and I’ll discuss the technicals below.

Elsewhere BoE Governor Mark Carney disagreed with his Chief Economist saying that rates were more likely to increase rather than fall over the course of the year. That knocked the FTSE a little. But the Pound and 10 year Gilts didn’t seem to care. On other stock markets, Europe was mostly higher and the US finished the week in the black.

On the day

On the data front today the Governments tax discussion paper is interesting but otherwise there is nothing out here at home. European consumer confidence is out and US personal income and consumption data is really important in helping shape expectations of the timing of the Fed move.

And here’s the overnight Scoreboard (7.51 am AEDT):
Here’s the overnight scoreboard:

• Dow Jones up 0.19% to 17,712
• Nasdaq up 0.57% to 4,891
• S&P up 0.24% to 2,061
• London (FTSE 100) down 0.58% to 6,855
• Frankfurt (DAX) up 0.21% to 11,868
• Paris (CAC) up 0.55% to 5,034
• Tokyo (Nikkei) down 0.95% to 19,285
• Shanghai (Composite) up 0.27% to 3,691
• Hong Kong (Hang Seng) flat at 24,486
• ASX Futures (SPI June) down 34 points at 5881
• AUDUSD: 0.7737
• EURUSD: 1.0887
• USDJPY: 119.21
• GBPUSD: 1.4886
• USDCAD: 1.2602
• Crude: $48.43
• Gold: $1,198

CHART OF THE DAY:

AUDUSD: Looking to test support

The test of support continues. But the Aussie’s fate rests elsewhere at the moment with iron ore under pressure and the US dollar on the subtle ascendancy once again.

On Friday I said the 4 hour charts suggested lower levels which we are now seeing.

0.7713/21 needs to hold otherwise it could slip to the mid 76 cent region.