- Forex today was all about the dollar. The greenback has extended its gains for the eighth consecutive and there are little signs of a switch up until US data comes back online.
- Fundamentals stay with the US government possible shutdown, Sino/US trade talks underway in Beijing, and looking to the RBNZ tomorrow following a series of meetings which leaves the Fed ahead of the pack still, fuelling a bid in the dollar.
The FX space was drifting in a familiar trajectory with the DXY taking on the 97 handle and albeit capped at the 127.2% Fibo extension. The euro and yen dropped to significant levels as the standout plays overnight. As for yields, the US 10yr treasury yield rose from 2.63% to 2.66%, while 2yr yields rose from 2.46% to 2.49%. Despite the fact that the futures markets continue to price little chance of any further Fed rate hikes in this cycle, with a 15% chance of a cut by December, the dollar remains the same go-to currency as there is little choice elsewhere and US rates are still offering the best return on short term money.
Currency action
Analysts at Westpac offered a recap of the key moves in the G10 space.
- "USD fell from 1.1320 to 1.1267 – the lowest since end-Nov. USD/JPY rose from 109.90 to 110.47 – the highest since end-Dec, bolstered by the rise in US treasury yields.
- AUD/USD fell from 0.7105 in early London trade to 0.7057 in NY (a one month low) amid broad US$ gains. NZD/USD similarly fell from 0.6770 to 0.6727. AUD/NZD ranged sideways between 1.0485 and 1.0505.
- Sterling was one of the weaker performers over the day, -0.6% to 1.2860. Along with Brexit headlines, GBP/USD dipped on soft data. UK Q4 GDP rose only 0.2%q/q, 1.3%y/y (est. 0.3%q/q) reflecting a sharper decline in business investment (-1.4%q/q)."
Key notes from US session:
- The FTSE 100 ended higher by 0.82% at 7,129.11 as GBP/USD falls 0.6% on growth disappointments
- Wall Street closed mixed, DJIA bucks the trend again
Key events ahead:
At 11:30am Syd/8:30am Sing/HK we see both official data on Dec home loan approvals and NAB’s Jan business confidence survey. Analysts at Westpac explained that the NAB survey will be closely watched, after a steep drop in business conditions in the previous report, from +10 to a +2, below long term averages. "Note that the Dec survey was actually conducted the second week of Jan, with today’s Jan survey conducted only about 2 weeks later. If the conditions index doesn’t rebound, it will not augur well for Australia’s growth outlook, since the index is a better match for activity than the confidence index, which was +3 in “Dec.” Both indexes were very strong in 2017 but trended lower in H2 2018."
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