Fed President Lockhart mentions rate hikes – Dollar up, bonds down

Quick Recap

Dennis Lockhart, the St Louis Fed President, last night added his voice to the chorus of Fed Governors and Presidents saying that the time is now right to start hiking rates.

His comments came in a Wall Street journal interview and the key comment appears to have been an assertion that there is a high bar to do nothing on rates. “I think there is a high bar right now to not acting, speaking for myself,” he said, adding “It will take a significant deterioration in the economic picture for me to be disinclined to move ahead.” Rates are rising in the US it seems, and soon.

That drove the US dollar higher against the Euro which is back below 1.09 and helped the dollar index rally around 0.7%. Sterling is off marginally, the Yen a little weaker also but it’s the CAD which continues to look terrible. last night it briefly touched 1.32 for a fresh 11 year high in USDCAD (CAD weaker).

The Kiwi was lower as well. But, in a sign that much of the non-Fed related bad news is baked in the cake, even the really weak dairy auction couldn’t hurt the Kiwi and it didn’t start falling until Lockhart’s comments hit the screens.  His comments hurt the Aussie as well but only to the extent that they knocked it from its highs not drove it lower.

Of course the Aussies strength comes from acute short positioning having been belted over the head yesterday by a solid, very very solid, retail sales and then the changed rhetoric from the RBA Governor in yesterday’s statement when he dropped his reference to the Aussie needing to go lower in favour of a simple statement it was adjusting to lower commodities.  Technically the Aussie is looking better as I discuss in chart of the day below.

Elsewhere bonds in the US, and Australia, sold off a little and stocks were lower.  Commodities, Oiol, copper and base metals all rallied.

The overnight scoreboard (8.38am AEST):

• Dow Jones -0.27 to 17,550
• Nasdaq -0.19% to 5,105
• S&P 500 -0.22% to 2,093
• London (FTSE 100) -0.03% to 6,686
• Frankfurt (DAX) +0.11% to 11,456
• Tokyo (Nikkei) -0.14% to 20,520
• Shanghai (composite) +3.11% to 3,948
• Hong Kong (Hang Seng) -0.02% to 24,406
• ASX Futures overnight (SPI September) -17 to 5,621
• AUDUSD: 0.7379
• EURUSD: 1.0888
• USDJPY: 124.34
• GBPUSD: 1.5561
• USDCAD: 1.3182
• Crude: $45.92
• Gold: $1,087
• Dalian Iron Ore (September): 421.5

On the day

On the data front today, employment and labour costs are out this morning in New Zealand. In Australia it’s the AiGroup performance of services index and Markit services PMI’s around Asia and the world today. In the US its trade and the ADP employment as a lead on non-farms Friday. ISM non-manufacturing and EIA crude stockpiles are also out.

CHART OF THE DAY: AUDUSD 

Yesterday afternoon in my Asian trading wrap here at Go Markets I said

I have been waiting for this to turn for a while now – patience – and I think that we might have seen an interim bottom. Buying it after the RBA was the easy part. Now for where it’s headed and where the stop should be.

Well actually the stop is in its below the recent low at 0.7230 position sized to account for that stop.

Inital target is my slow moving average at 0.7430ish, then 0.7480ish maybe 0.7528.

We are now getting the reaction to my first target being hit 0.7330/40 is possible today.

Longer term I retain a bias to be long.

Yesterday I looked at USOil and wondered “almost there?” but said “don’t catch a falling knife is in the top 10 rules of trading. But so is respecting levels unless or until they break. So we might be nearing a pessimistic crescendo for Oil. But I am not betting on it yet. But, while I don’t have a position I am watching closely. That’s also in the top 10 rules of trading – PATIENCE”

We might be there now after last night’s rally…keeping an eye on it.