Dollar retreats on soft US PMIs, bond yields tumble

Aussie, Kiwi rebound; Yen stays weak past 150 USD

Summary:

The US ISM Manufacturing PMI in February fell to 47.8, way below estimates of 49.5, and 49.1 previously. US Bond yields tumbled, with the 10-year rate settling at 4.18% (4.25%). The 2-year US treasury rate slumped 11 basis points, finishing at 4.53%.

John Williams, New York Fed President said he expects the US central bank to cut interest rates later this year amid easing inflation and a healthy economy.

The Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies, retreated below the 104 level to 103.87 at the New York close.

The Australian Dollar (AUD/USD) rebounded against the Greenback, settling at 0.6525 (0.6500). New Zealand’s Kiwi (NZD/USD) rallied 0.3% to 0.6105 from 0.6085 Friday.

Sterling (GBP/USD) climbed to 1.2660 (1.2620). The Euro (EUR/USD) edged up 0.25% to 1.0840 (1.0807 Friday). The Eurozone Annual Core CPI was up at 3.1%, beating estimates at 2.9%.

The Japanese Yen though weakened past the 150 Dollar mark. The USD/JPY pair finished at 150.12 (149.90 Friday). Bank of Japan Governor Kazuo Ueda said on Friday that it was too early to conclude sustained achievement of the central bank’s 2% inflation can be foreseen.

Against the Asian and Emerging Market Currencies (EMFX), the US Dollar finished lower. USD/SGD (US Dollar-Singapore Dollar) dipped to 1.3445 (1.3455) while the USD/THB pair (Dollar-Thai Baht) fell to 35.75 from 35.95 Friday.

Wall Street stocks gained. The DOW climbed to 39,050 from 38,880 Friday while the S&P 500 added 0.79% to 5,133 (5,080 Friday). Japan’s Nikkei soared to 40,200 in late New York (39,200).

Other economic data released Friday saw the Eurozone January Unemployment Rate dip to 6.4%, against forecasts at 6.5%, unchanged from 6.4% previously. China’s February Caixin Manufacturing PMI climbed to 50.9 from 50.8 previously, beating estimates at 50.6.

• USD/JPY – in another volatile trading session, the Dollar soared to an overnight high at 150.71 before tumbling lower at the close. The USD/JPY pair recorded an overnight low at 149.89. Dovish BOJ rhetoric weighed on the Japanese currency.
• AUD/USD – the Aussie Battler rebounded against the Greenback, climbing to close at 0.6525 from 0.6500 Friday. The Australian Dollar traded to an overnight high at 0.6534 while the overnight low recorded was 0.6489.
• EUR/USD – the shared currency rallied against the Greenback to finish at 1.0840, near its overnight high of 1.0843, and up from Friday’s opening at 1.0807. Eurozone February Annual Core CPI climbed to 3.1%, up from estimates at 2.9%.
• GBP/USD – Sterling benefitted from the overall weaker US Dollar, settling at 1.2660, from 1.2620 Friday. The British Pound traded to an overnight high at 1.2664 while the overnight low recorded was at 1.2599.

On the lookout:

This week starts off with a relatively light economic calendar. New Zealand kicks off with its Q4 Term of Trade (q/q f/c -0.2% from -0.6% - ACY Finlogix). Japan follows with its Capital Spending (f/c y/y 1.9% from 3.4% - ACY Finlogix). Australia follows with its Preliminary January Building Permits (m/m f/c 4% from -9.5% previously- ACY Finlogix), Australian Company Gross Profits (q/q f/c 1.8% from -1.3% previously – ACY Finlogix) and finally ANZ Bank February Job Advertisements (f/c -0.6% from 1.7% - ACY Finlogix).

Switzerland starts off Europe with its Swiss Inflation Rate (m/m f/c 0.2% from 0.2%; y/y f/c 1.1% from 1.3% - ACY Finlogix). The Eurozone releases its Eurozone Sentix Investor Confidence (f/c -10.8 from -12.9 – ACY Finlogix).
There are no major economic data releases out of the U.S.

Trading perspective:

The Dollar retreated after US bond yields slumped following the release of a weaker than expected US ISM Manufacturing PMI. The US 10-year treasury yield dropped 7 basis points to 4.18%. A few days ago, the ten-year treasury rate was 4.32%. That’s a huge move lower and we can expect the Dollar to stay soft on the back of lower US yields. Despite the USD/JPY pair bucking the trend and finishing higher at 150.12, the lower US bond yields will weigh on this currency pair.

• USD/JPY – the US Dollar edged higher against the Japanese Yen to finish at 150.12. On the day look for immediate resistance at 150.40 followed by 150.70 (overnight high traded was 150.71). The next resistance level is found at 151.00. Immediate support can be found at 149.90 (overnight low traded was 149.89). The next support level lies at 149.60 followed by 149.30. Look for more choppy trade in this currency pair, likely between 149.70-150.70. Watch the US bond yields, if they head lower, USD/JPY will tank.
• AUD/USD – the Aussie Battler outperformed, gaining to 0.6525, up from Friday’s 0.6500 opening. On the day, immediate resistance can be found at 0.6535 (overnight high traded was 0.6534). The next resistance level lies at 0.6565 and 0.6595. Immediate support can be found at 0.6490 (overnight low traded was 0.6489). The next support is found at 0.6460. Look for the Aussie to trade a likely range today of 0.6480-0.6580. Trade the range, the preference is to sell Aussie rallies.
• EUR/USD – the shared currency rebounded against the Greenback to finish at 1.0840 from 1.0807 on Friday. On the day, look for immediate resistance at 1.0860 followed by 1.0890. Immediate support can be found at 1.0800 (overnight low traded was 1.0798). The next support level lies at 1.0770. Look for the Euro to consolidate in a likely range today of 1.0785-1.0875. Trade the range.
• GBP/USD – Sterling climbed against the broadly based weaker US Dollar to settle at 1.2660, up from 1.2620 on Friday. Look for immediate resistance today at 1.2690 followed by 1.2720. On the downside, immediate support can be found at 1.2630, 1.2600 and 1.2570. Look for the British Pound to consolidate in a likely range today of 1.2610-1.2680. The preference is to sell Sterling on strength.

Have a good trading week ahead, happy Monday all.