Dollar steadies, US yields climb on poor Treasury sales

Yen weakens, offshore Chinese Yuan hits one-week low

Summary:

The Dollar Index, which measures the value of the Greenback against 6 major currencies, steadied to finish with modest gains at 104.63 (104.55 yesterday).

US Bond yields climbed following a poor treasury auction which saw lukewarm demand. The benchmark US 10-year treasury yield climbed 9 basis points to 4.55%. The 2-year bond rate rose to 4.98% from 4.95%. Other global rates rose but to a lesser extent than that of the US.

Hawkish Fed speak also lifted yields. Minneapolis Federal President Neel Kashkari reiterated his view that the US central bank was not convinced that inflation had fallen quickly enough.

Japan’s Yen weakened beyond 157 US Dollars to 157.20 despite comments from BOJ officials. Kazuo Ueda, BOJ Governor, said it is necessary to re-anchor inflation expectations. The yield differential between US and Japanese rates widened anew.

Against the trend, Sterling (GBP/USD) edged higher to 1.2760 from 1.2740. On the crosses, the GBP/JPY (Sterling-Yen) pair soared to 200.65, highs not seen since August 2008.

The Euro (EUR/USD) eased to 1.0855 from 1.0875. The shared currency traded to1.0889, near 2-week highs before settling. The EUR/JPY (Euro-Yen) cross rose to 170.65 (170.25).

The USD/CNH pair (Dollar-Offshore Chinese Yuan) soared to 7.2640 from 7.2580, fresh 1-week highs. Apart from higher US yields, escalating geopolitical tensions in the Taiwan Strait weighed on the Offshore Chinese Yuan.

The Aussie Dollar (AUD/USD) dipped to 0.6650 from 0.6670. Australia’s April Retail Sales climbed 0.1%, less than forecasts at 0.3%. The Kiwi (NZD/USD) eased to 0.6140 (0.6155).

Against the Asian and Emerging Market Currencies, the Dollar (USD/EMFX) finished mixed. The USD/THB pair was flat at 36.60. USD/SGD (Dollar-Singapore) dipped to 1.3485 from 1.3500.

Data released yesterday saw Germany’s IFO Business Climate fall to 89.3, lower than forecasts at 90.4. Japan’s BOJ Annual Core CPI eased to 1.8% from 2.2% previously. US CB Consumer Confidence climbed to 102.0 from 97.5 previously, beating estimates at 96.0.

• USD/JPY – The Greenback rallied to 157.20 Japanese Yen (157.00) supported by higher US bond yields. Overnight, the USD/JPY pair traded to a high at 157.21 while the overnight low recorded was 156.58.
• AUD/USD – The Aussie Battler dipped to 0.6650 from 0.6670 previously. Overall US Dollar strength combined with weaker April Australian Retail Sales data weighed on the Aussie. The overnight low traded was at 0.6642 while the high recorded was 0.6680.
• EUR/USD – The shared currency dipped against the Greenback to 1.0855 in late New York, against yesterday’s 1.0875. The Euro traded to an overnight high at 1.0889. In subdued trade, the overnight low recorded for the Euro was 1.0850.
• GBP/USD – Sterling outperformed, settling at 1.2760, up modestly from 1.2740 yesterday. The British Pound traded to an overnight and March 21 high at 1.2801 while the overnight low recorded was 1.2754.

On the lookout:

Today’s economic calendar kicks off with New Zealand’s ANZ May Business Confidence (f/c 15 from 14.9 – ACY Finlogix). Australia follows with its April Monthly CPI Indicator (f/c 3.4% from 3.5% - ACY Finlogix). Japan releases its May Consumer Confidence (f/c 38.9 from 38.3 – ACY Finlogix). Bank of Japan Board member Seiji Adachi speaks is scheduled to speak at 11.30 am (Sydney time). Europe starts off Germany’s June GFK Consumer Confidence (f/c -22.4 from -24/2 – ACY Finlogix), German Preliminary May Inflation Rate (m/m f/c 0.2% from 0.5%; y/y f/c 2.4% from 2.2% - ACY Finlogix).

France follows with its May Consumer Confidence (f/c 91 from 90 – ACY Finlogix). Italy releases its May Consumer Confidence (f/c 95.9 from 95.2 – ACY Finlogix). The US rounds up today’s data releases with its Richmond Fed May Manufacturing Index (f/c -2 from -7), US Dallas Fed May Services Index (f/c -10 from -10.6 – ACY Finlogix). The Federal Reserve releases its Fed Beige Book, which is the Summary of Commentary on Current Economic Conditions, a qualitative review of economic conditions.

It is published eight times each year before the FOMC meetings are held, and is considered one of the most valuable tools at the committee’s disposal for making key decisions about the economy.

Trading perspective:

Widening yield differentials in favor of US rates against the rest of the world will continue to support the Dollar. The Dollar Index (DXY) closed near its highs (104.65). A break above 104.70 could see 105.00. The release of the Fed Beige Book and any comments from Fed officials following the result will be closely watched. The Yen will be the most watched currency given the yield differentials between Japan and the US. FX volatility could spike.

• USD/JPY – The Dollar edged higher against the Japanese Yen to 157.20. Look for immediate resistance at 157.50 followed by 157.80. On the downside, immediate support can be found at 156.90, 156.60 and 156.30. Expect more choppy trade in this currency pair. Likely range today 156.50-157.50. Trade the range with a preference to buys USD/JPY dips.

• AUD/USD – The Aussie Battler dipped to 0.6650 from 0.6670 against the Greenback. Immediate support for the Aussie can be found at 0.6620 followed by 0.6590. Immediate resistance lies at 0.6680 (overnight high). The next resistance level lies at 0.6710. On the downside, immediate support can be found at 0.6620, and 0.6590. Look for the Aussie to trade in a likely range between 0.6610-0.6710. The preference is to sell AUD rallies.
• EUR/USD – The shared currency eased to 1.0855 from 1.0875 against the Greenback. On the day, look for immediate support at 1.0820 followed by 1.0790. Immediate resistance can be found at 1.0890 followed by 1.0920. Look for the Euro to trade in a likely range today of 1.0820-1.0920. Trade the range, the preference is to sell Euro rallies.
• GBP/USD – Sterling edged higher against the US Dollar to 1.2760, up from its 1.2740 opening. On the day, look for immediate resistance at 1.2790 followed by 1.2810. On the downside, immediate support can be found at 1.2730, 1.2700 and 1.2670. Look for the British Pound to consolidate in a likely trading range today of 1.2730-1.2830. Trade the range.

Have a top Wednesday ahead all. Happy trading.