Dollar Tumbles after FED Hikes Rates 25 BP; BOE Follows Suit

Michael Moran, Senior Currency Strategist at ACY

18.03.2022 03:45 pm

#stocks

AUD Jumps, EUR Lifts; Stocks Rally, US Bond Yields Rise

Summary: The Dollar Index, a favourite gauge of the Greenback’s value against a basket of 6 major currencies, tumbled 0.65% to 97.97 from 99.05, reversing its gains. In volatile trade the USD/DXY hit an overnight and two-week low at 97.72 before rebounding at the close. As was widely expected, the US Federal Reserve raised its Feds Funds Rate 25 basis points to 0.5% from 0.25%. For the Greenback it was a classic case of buy the rumour, sell the fact. Later in the day, the Bank of England followed suit lifting its Official Bank Rate to 0.75% from 0.50%. The British Pound (GBP/USD) which spiked to 1.3211 following the announcement, reversed its gains to finish at 1.3150 in late New York. Best performing FX went to the Australian Dollar (AUD/USD) which jumped 1.22% against the Greenback to 0.7377 (0.7195 Wednesday). Stellar Australian Employment data which saw the country’s Jobless Rate fall to 4%, the lowest since 2008 buoyed the “Battler”. The Euro (EUR/USD) rebounded 0.69% to 1.1097 from 1.1020, after trading to an overnight peak at 1.1137. Against the Japanese Yen, the Greenback eased to finish at 118.60 after trading to its highest level since February 2016 at 119.02. In contrast to the US Federal Reserve, the Bank of Japan is expected to stay with its accommodative policy at the conclusion of its interest rate meeting today. Against the Asian and Emerging Market currencies, the US Dollar was mostly lower. The USD/SGD (US Dollar-Singapore Dollar) pair slid 0.38% to 1.3537 (1.3575). USD/CNH (US Dollar-Offshore Chinese Yuan) was last at 6.3640 from 6.3715.
Data released yesterday saw New Zealand’s Q4 2021 GDP climb to 3.0% from a previous -3.6%, but lower than forecasts at 3.3%. Japan’s February Core Machinery Orders matched expectations at -2.0%. Australia created a total of 77,400 jobs in February, bettering economist’s expectations at 36,000. Australia’s Unemployment Rate fell to 4.0% from 4.2%, beating estimates at 4.1%. The Eurozone Final CPI rose to 5.9% from 5.8% while Final Core CPI matched forecasts at 2.7%. The Bank of England Monetary Policy Committee’s Official Bank Rates saw policy makers vote 8-0-1. Eight members voted to increase rates while one voted to hold. US Building Permits climbed to 1.86 million against forecasts at 1.84 million while Housing Starts were up at 1.77 million from a previous 1.66 million, and higher than forecasts at 1.70 million. The US Capacity Utilization Rate dipped to 77.6% against expectations at 77.9%. US Philadelphia Fed Manufacturing Index rose to 27.4 from a previous 16.0, beating forecasts at 15.1. Weekly Unemployment Claims eased to 214,000 from 229,000 and better then estimates at 221,000.

EUR/USD – The shared currency finished stronger against the backdrop of broad-based US Dollar weakness after the Fed raised rates by 25 basis points which was expected. Overnight, the Euro slumped to a low at 1.1020 before rebounding to 1.1097 at the New York close. Overnight high traded was at 1.1137.
AUD/USD – In true Battler fashion, the Aussie Dollar frustrated the shorts, jumping to an overnight high at 0.7393 in choppy trade from its opening at 0.7198. The Australian Dollar closed at 0.7377, up 1.22%, and best performing currency. Earlier this week, the AUD/USD pair slid to a low at 0.7165.
GBP/USD – Sterling had a roller coaster ride of its own trading in a wide and wonderful range of 1.3088 and 1.3211, settling in late New York at 1.3150, a net gain of 0.1%. After the Bank of England hiked its Official Bank Rate to 0.75% from 0.50%, there was one policy maker out of the nine that voted to keep rates unchanged.
USD/JPY – Against the Japanese Yen, the Greenback eased 0.22% to 118.60 after trading to 119.02 overnight, its highest level since February 2016. The Bank of Japan is expected to keep its policy unchanged at the conclusion of its interest rates meeting today and remain accommodative.

On the Lookout: Today’s economic calendar is light. Japan kicks off with its National Headline and Core CPI data for February (Headline y/y no forecast, previous was 0.5%; Core f/c 0.6% from 0.2% - ACY Finlogix). The Bank of Japan is widely expected to keep its BOJ Policy Rate unchanged at -0.10%. European data starts off with the Eurozone January Trade Balance (f/c -EUR 9.1 billion from previous -EUR 9.7 billion – FX Factory). North America sees Canada start off with its January Headline Retail Sales (m/m f/c 2.4% from previous -1.8%; Core f/c 2.4% from previous -2.5%), Canadian ADP Employment Change for February follows (no f/c, previous was -301,000). The US releases its February Existing Home Sales (f/c 6.1 million units from 6.5 million) and US Conference Board Leading Index for February (f/c 0.3% from previous -0.3%).

Trading Perspective: The DXY reversed its gains, tumbling after the Federal Reserve hiked its Fed Funds rate by 25 basis points to 0.5%. The US central bank also was hawkish in its outlook, signalling six more rate rises in 2022. Initially soaring following the announcement, the Greenback lost ground, surrendering its advance as speculative Dollar longs headed for the exit. The week has seen a see-saw ride for FX with the one common denominator being volatility. We can expect more choppy trading today. The risk-on sentiment which prevailed overnight faded in early Asia after news reports that Russia was likely to use chemical weapons in its war with the Ukraine. While negotiations between the two protagonists were ongoing a ceasefire was yet to be agreed. A separate report from Bloomberg saw Russia avoid a default and successfully making USD 117 million interest payment. On top of this the recent resurgence of Covid-19 in China saw Chinese Premier Liu He signal more stimulus to support their markets. Tin helmets on, strap yourselves in for another riveting, see-saw day. Thank God its Friday indeed. Happy trading.

EUR/USD – The Euro reversed its fall on the broadly based lower Greenback amidst hopes of a peace deal between Russia and Ukraine. The shared currency closed at 1.1097 from 1.1020 on Wednesday. Overnight high traded was at 1.1137. Immediate resistance today lies at 1.1130 followed by 1.1160 and then 1.1200. On the downside, immediate support can be found at 1.1075,1.1045 and 1.1025. Overnight low traded was 1.1020. Look for further choppy trading in a like range of 1.1030-1.1130. Preference is to sell the bounce.
AUD/USD – in true Battler fashion, the Aussie Dollar squeezed out the weak speculative shorts. Overnight the AUD/USD pair jumped to a high at 0.7393 from yesterday’s opening at 0.7297, finishing in New York at 0.7377. On Wednesday, the AUD/USD pair was at 0.7195. For today, immediate resistance lies at 0.7400 followed by 0.7430. On the downside, immediate support can be found at 0.7350, 0.3720 and 0.7190. Look for further see-saw trade today in a likely range of 0.7270-0.7410. Preference is to sell rallies.

(Source: Finlogix.com)

GBP/USD – The British Pound edged up against the US Dollar to 1.3150 in late New York. Overnight high for Sterling was at 1.3211, while the overnight low traded was at 1.3088. Nice and wide. For today, immediate resistance can be found at 1.3180 followed by 1.3210. Immediate support lies at 1.3120 and 1.3090. Looking to sell rallies in a likely trading range today of 1.3100-1.3200.
USD/JPY – Against the Japanese Yen, the Greenback soared to an overnight and February 2016 high at 119.02 before easing to 118.60 at the New York close. Overnight the benchmark US 10-year bond yield climbed to 2.19% from 2.14% on Wednesday. These are highs not seen since April 2019. For today, immediate support for USD/JPY lies at 118.30 (overnight low 118.37). The next support level is at 118.00. Immediate resistance is found at 118.90 followed by 119.20. The Bank of Japan is expected to keep its accommodative policy unchanged after it meets today. This will keep the USD/JPY bid. However, any build in risk aversion could see the Japanese currency advance. Expect a choppy day today with a likely range of 118.20-119.20. Prefer to sell rallies.

Tin helmets on, strap yourselves in for another riveting, see-saw day. Thank God it’s Friday indeed. Hoping and praying for an end to the war between Russia and Ukraine. Be nimble and trade well.

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