The US Dollar looks to “Fed-speak” for direction after correcting higher overnight following the worst daily decline in 12 months.
Talking Points:
US Dollar Corrects Higher Overnight, Looks for Next Lead in Fed Commentary
Aussie Dollar Underperforms as 2-year Yields Drop to Weakest in Two Months
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The US Dollar outperformed in overnight, rising as much as 0.3 percent on average against its leading counterparts. The move appeared corrective after the greenback’s dismal performance in the preceding 24 hours. The benchmark currency slid 0.9 percent, marking the largest daily drawdown in a year.
The Australian Dollar proved weakest on the session, sliding alongside front-end bond yields. The return on Australia’s 2-year bond slid to a low of 2.472 percent, the weakest in two months, as global slowdown fears weighed against RBA rate hike bets and fueled demand for fixed income instruments.
Looking ahead, a quiet economic calendar in European trading hour is likely to put “Fed-speak” in the spotlight. Philadelphia Fed President Plosser and Minneapolis Fed President Kocherlakota – both members of the rate-setting FOMC – will be in focus. Comments from Atlanta Fed President Lockhart and St. Louis Fed President Bullard are also set to cross the wires.
Needless to say, traders will be most keen to gauge the probability of delaying the first post-QE3 interest rate hike amid swelling global downturn worries. As it stands, Fed Funds futures suggest the markets no longer expect tightening until early 2016. Concerned rhetoric akin to remarks from Fed Vice Chair Fischer earlier in the week may prove painful for the US unit, whereas a more sanguine approach will probably offer support.
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