Dollar Wobbles Into End of Week

Market Drivers February 24, 2017
RBA’s Lowe – hard to say AUD is overvalued
USD/JPY drop below 112.50
Nikkei -0.45% Dax -0.33%
Oil $54/bbl
Gold $1256/oz.

Europe and Asia:
GBP BBA Mortgage Approvals 44.7K vs. 41.9K

North America:
CAD CPI 8:30
USD New Home Sales 10:00

The dollar dribbled lower in end of week London trade today with USD/JPY dipping below the 112.50 support level as FX flow remained affected by lower US yields.

With very little data on the calendar price action was slow for most of the night with Europe reversing much of Asia’s moves which USDJPY make a half-hearted attempt to run the stops at 113.00. As we’ve been noting all week, USD/JPY continues to perform poorly as markets remain skeptical despite hawkish rhetoric from the FED and generally upbeat US data.

The conventional wisdom is that the Fed will not hike rates in March and until that sentiment changes the buck appears to have little support in the market.

Meanwhile elsewhere, the EURUSD was better bid rising to 1.0600 in Asian trade before backing off a bit. The pair has finally stabilized as concerns over French elections have eased with centrist candidate Macron now looking to be the heavy favorite in the second round of elections. The support for candidate Marie Le Pen remains steady but is capped at 25% and therefore offers little threat of possible win.

In Australia, the RBA Governor Lowe testified for over 3 hours in front of Parliament with Aussie seeing little to no reaction, but he did state that it was difficult to tell is the currency was overvalued. That was a rather hawkish comment from an RBA chief, given the fact that the central bank generally tries to jawbone the unit lower. In any case, Mr. Lowe made it abundantly clear that the RBA is now in more hawkish mode and is unlikely to consider any rate cuts in the foreseeable future.

The Aussie has been in a stealth rally mode since the start of the year as the stall in US yields has made the carry trade once again attractive. And although the pair faces very stiff resistance at the .7800 figure, it shows no sign of any weakening and could make the run towards that key figure over the next few days.

In North America today, the calendar remains light with only Canadian CPI and US New Home Sales data on the docket, but given the weakness in the dollar and the dip in US yields, the bears could press a test of 112.00 level in USD/JPY as the day proceeds.