Forex today: mixed Fed chat, dollar higher and equities/ rates up

The FX day in the US session was driven by continued risk appetite from investors, pushing yields and the stock market higher with the greenback following suit in the optimism. The higher beta's rally came to a grinding halt. 

The DXY was up 0.4% and while we had a lack of data to start the week off, some Fed chat has been crossing the wires. starting with Fed's Williams, he said price-level targeting has benefits while painting a benign picture of Fed rate hikes, albeit highlighting the strength of the U.S. economy. Then, Fed's Bostic said that the Fed should be cautious if yield curve continues to flatten while arguing that three rate hikes in 2018 may be too much.

"US 10yr treasury yields eked a slightly higher range of 2.46%-2.49% - the latter the highest since 26 Dec. Short-maturities yields remained steady, 2yr treasury yields ranging between 1.95% and 1.97%. Fed fund futures priced the chance of another rate hike in March at 63%," explained analysts at Westpac.

In respect to other currencies, the euro dipped on the back of a record-long CFTC position with 1.1950 under pressure and the price running between 1.1959/52 on the day, closing at 1.1967. GBP/USD was resilient on the session, catching a bounce on the fixing and outdoing its single currency counterpart in the cross that edged lower to a low of 0.8815 on the session. Cable closed at 1.3567 within a range between 23/86 on the same handle.  

USD/JPY price action was subdued despite a rally on Wall Street and higher rates and fluctuated between 112.90 and 113.40, closing at 113.06. The Commodity bloc was lower as CRB slides for the second day. AUD retreated as the USD gained, falling from 0.7870 to 0.7827 after opening at 0.7835 after a sharp drop, lead by AUD/JPY. The Kiwi outperformed, managing to hold most of the day's gains and maintaining an elevated range of 0.7156-0.7184.  Oil was better bid as crude oil stocks are expected to shrink for the eighth week and upside was underpinned by Friday's production data; gold was down on dollar's resurgence while copper positioning moved to a new record on macro optimism.

Key events ahead

Analysts at Westpac highlighted the key data ahead as follows: 

• Australia: Nov dwelling approvals are expected to fall 1.0%, reversing Oct’s 0.9% gain. Westpac sees a 1.5% drop with Vic likely to unwind a 24.2% jump driven by high rise approvals. Dec ANZ job ads were last up 1.5% in Nov. Employment growth has relatively outperformed job ads in 2017.
• Euro Area: The Nov unemployment rate is expected to confirm the flash reading of 8.8%.
• Germany: Nov industrial production had previously surprised to the downside in Oct, -1.4%, following an upgrade to Sep’s figures. PMIs suggest a bounce.
• US: Dec NFIB small business optimism is expected to remain around highs, with owners anticipating stronger economic growth. Nov JOLTS data will provide detail on the labour market. Fedspeak involves Rosengren at the Brookings Institution inflation targeting conference and Kashkari on a panel in Minnesota. Both are non-voters in 2018.

Key notes from US session

• Crypto Today: Bitcoin slides toward $15K, Ripple's market cap drops below $100 billion
• Gold supported above $1315, consolidates near 3-month lows
• Fed’s Williams: In next crisis, central banks to have less room to cut rates
• Fed's Bostic: My base case for 2018 Fed rate increases is "two to three"
• Fed's Bostic: Fed may not need to raise rates three times in 2018 given weak inflation
• WTI consolidating below the 2½-year high, more upside to come?