US bond yields spike, briskest since 1992, dollar soars

Aussie, Kiwi Tumble, Lead FX Lower; Euro, Sterling Slide

Summary: After it’s slide that kicked off 2022, the Dollar Index (USD/DXY), a favourite measure of the Greenback’s value against a basket of 6 major currencies rebounded 0.40% to 95.17 (94.80 Friday). US Treasury bond yields rose their briskest since 1992, the benchmark 10-Year note spiking 8 basis points to 1.78%. The two-year US note finished with a rate of 0.97% from 0.89% on Friday. The Australian Dollar underperformed FX, tumbling 1.21% lower to 0.7210 (0.7288), while the Kiwi (NZD/USD) settled at 0.6810 (0.6871), down 1.01%. The Euro reversed its gains made last week. After climbing t 1.1483 on Friday, the shared currency slid 0.50% to 1.1415 in late New York trade on Friday. Sterling fell 0.49% to 1.3660 (1.3715). Against the Japanese Yen, the US Dollar edged higher to 114.20 from 114.05. The Greenback was mostly higher against the Asian and Emerging Market currencies. The USD/SGD (US Dollar- Singapore Dollar) pair rallied to 1.3485 from 1.3455 while USD/CNH (Dollar-Offshore Chinese Yuan) settled at 6.3575 (6.3635).  Risk appetite waned and the broad measures of global equities mostly lower. The DOW closed at 35,960 (36,203 Friday), while the S&P 500 was little changed at 4,674 (4,680). Australia’s ASX 200 finished at 7,422 (7,435 Friday).

Data released on Friday saw Japanese Producer Prices (y/y) ease to 8.5% from 9.0%, lower than estimates of 8.8%. China’s December Trade Surplus climbed to +USD 94.5 billion, bettering forecasts at +USD 73.9 billion and November’s +USD 71.7 billion. UK December GDP (m/m) rose 0.9%, beating estimates at 0.4%. UK Industrial Production (m/m) was up 1.1%, higher than forecasts of 0.2%. The Eurozone Trade Deficit eased to -EUR 1.3 billion from a previous upward revised deficit of -EUR 1.8 billion. US December Retail Sales (m/m) slid -1.9%, against median expectations of +0.2%. Core US Retail Sales fell to -2.3% (m/m) against forecasts of 0.2%. US December Industrial Production dipped to -0.1%, missing forecasts at 0.2% and a previously upward revised 0.7%. The US Capacity Utilisation Rate dipped to 76.5% from a downward revised 76.6% in December. US Preliminary University of Michigan Consumer Sentiment fell to 68.8 from 70.6, and lower than expectations of 77.1%.

• AUD/USD – The Aussie Battler was sold hard against the broadly based stronger US Dollar. On Friday, the AUD/USD hit an overnight high at 0.7293 before its slide began. Waning risk appetite which saw equity prices slide, and lower metal prices weighed on the AUD/USD pair. Overnight low traded for the Aussie was at 0.7192.
• EUR/USD – after climbing against the Greenback for most of last week, the Euro slid against the US Dollar to settle at 1.1415 from 1.1460 Friday. The rebound in the US Dollar against most of it’s Rivals weighed on the shared currency. Overnight low traded was at 1.1397 while the overnight peak recorded was at 1.1483.
• USD/JPY – against the Japanese Yen, the Dollar edged modestly higher to finish at 114.20 from 114.05 on Friday. Despite higher US bond yields, the topside of this currency pair was limited by the market’s mild risk aversion, which attracted JPY buyers. Overnight low traded for the USD/JPY pair was at 113.48.
• GBP/USD – Sterling eased despite robust UK GDP and Industrial Production data, finishing 0.49% lower to 1.3665 (1.3715 Friday). Overnight, the GBP/USD soared to a high at 1.3743 on the strong UK data before sliding lower against the overall stronger Greenback.

On the Lookout: We begin the week with a busy calendar in front of us. Today kicks off with Japanese November Machinery Orders report (m/m f/c 1.4% from 3.8%; y/y f/c 6.1% from 2.9%). Australia follows next with Australian November Building Permits for November (f/c 3.6% from a previous -13.6%. Today’s data highlight features the Chinese trifecta of Industrial Production (December y/y f/c 3.6% from 3.8%), Chinese December Retail Sales (y/y f/c 3.7% from 3.9%) and Chinese GDP (y/y f/c 3.6% from 4.9%). All data forecasts are from ACY Securities. China also releases its Industrial Capacity Utilisation (no f/c, previous was 77.1%). Italy starts off European reports with its Final December CPI (m/m f/c 0.4% from 0.6%; y/y f/c 3.9% from 3.7%). Canada kicks off North American data with its November Manufacturing Sales (m/m f/c 3.1% from 4.3%). All data estimates are courtesy of ACY Securities. The Bank of Canada releases its Business Outlook Survey. There are no data releases from the US as the country celebrates its Martin Luther King Jr holiday.

Trading Perspective: The Dollar sold off most of last week as speculative long USD bets unwound their positions. On Friday though the jump in US treasury bond yields saw fresh demand for the Greenback, with the Dollar Index (USD/DXY) settling 0.40% higher to 95.17 from 94.80. Higher US treasury bond yields will keep support for the Greenback alive. Asian traders will be content to consolidate Friday’s advance for the US Dollar. China releases its trifecta of Industrial Production, Retail Sales and Fixed Asset Investment. China will also release its quarterly GDP report. Forecasts are for a slide in Chinese Q/Y GDP of 3.3% from a previous 4.9%. Anything lower than 3.3% will see risk aversion build which will result in lower stocks and weigh on risk currencies, the Aussie and Kiwi.
Disruptions to global supply chains due to lockdowns from the Omicron variant threatens more inflation, which could further weigh on asset prices. The Dollar could see more support as this unfolds.

• AUD/USD – the Aussie Battler finds itself slip-sliding away against the double whammy of broad-based USD strength and a rise in risk aversion. In choppy trade, the AUD/USD pair hit an overnight high at 0.7293, just under the 0.7300 barrier. The Australian Dollar finished at 0.7210 after tumbling to an overnight low at 0.7192. For today, immediate resistance can be found at 0.7190 followed by 0.7160. Immediate resistance lies at 0.7235, 0.7260 and 0.7285. Looking for the AUD/USD pair to drift lower in a likely range today of 0.7175 to 0.7255.

(Source: Finlogix.com)

• EUR/USD – after soaring to an overnight peak at 1.1483, the Euro slumped to finish 0.50% lower against the US Dollar to 1.1415. Overnight, the EUR/USD pair traded to a low at 1.1397. On the day, immediate support for the Euro lies at 1.1390 followed by 1.1360. On the topside, we find immediate resistance at 1.1430, 1.1460 and 1.1490. Look for the Euro trade a likely range today of 1.1370-1.1450. Preference is to sell rallies.
• GBP/USD – The British currency also fell under the weight of the overall stronger US Dollar. Sterling settled at 1.3665 in late New York from Friday’s opening at 1.3715. Overnight low traded for the British Pound was at 1.3645, which is today’s immediate support. The next support level is found at 1.3640 and 1.3615. On the topside, immediate resistance can be found at 1.3690, 1.3710 and 1.3740. Look for the GBP/USD pair to trade a likely range today of 1.3630-1.3730. Expect some choppy waters for this puppy, preference is to sell rallies.
• USD/JPY – Against the Japanese Yen, the Dollar rose modestly to 114.20 in late New York Friday from 114.05. Overnight high traded for the USD/JPY pair was at 114.26. The rally in the USD/JPY was muted despite higher US bond yields due to risk aversion. The Yen is a magnet currency in risk averse times. Immediate support for today lies at 113.90 followed by 113.60 and 113.30. On the topside, immediate resistance is found at 114.30, 114.60 and 114.90. If risk appetite increases, the USD/JPY pair will spike higher. Meantime, expect Asia to trade a likely, albeit choppy range today of 113.70-114.70. Prefer to buy dips.

Happy Monday all, have a productive week ahead.