DXY Extends Gains, Euro Slides; US Inflation Jumps to 40-Year High

Michael Moran, Senior Currency Strategist at ACY

13.04.2022 05:00 pm

#stocks

AUD, NZD Climb, Resources Up; RBNZ, BOC Expected to Hike Rates

Summary: The Dollar Index (USD/DXY), a favourite measure of the Greenback’s value against a basket of 6 major currencies, extended its gains climbing to 100.32 from 99.90 yesterday. US March Headline Inflation (CPI) jumped to an annual 8.5% from 7.9% previously, and its highest level in 40 years. Economists had expected a year-on-year rise of 8.4%. However, Core Inflation (excluding food and energy prices) dipped to an annual 6.5% against median forecasts at 6.6%. Which saw US treasury bond yields tumble. The benchmark 10-year US bond rate closed at 2.72% (2.82% yesterday). Two-year US treasury yields settled at 2.41% (2.54% yesterday). Elsewhere, Russian President Putin said that current talks are “in dead-end”, claiming that Ukraine had deviated from agreements achieved in Istanbul. The Euro (EUR/USD), which makes up 57.6% of the weight in the Dollar Index, renewed its slide, closing at 1.0827 (1.0867). Sterling (GBP/USD) was little changed, settling in late New York to 1.3002 (1.3003). The Greenback’s rally, however, was not broad based. A rebound in commodity prices lifted the AUD/USD pair to 0.7455 (0.7430) and the Kiwi (NZD/USD) to 0.6848 (0.6825). The USD/JPY pair dipped to 125.40 from 125.60 yesterday. USD/CHF (Dollar-Swiss France) dipped to 0.9327 (0.9338). Against the Asian and Emerging Market currencies, the Greenback finished mostly lower. The USD/SGD pair dipped to 1.3640 from 1.3648 while USD/THB (US Dollar-Thai Baht) fell to 33.55 (33.65). Against the Offshore Chinese Yuan, the US Dollar (USD/CNH) eased to 6.3770 from 6.3790. Other global treasury bond yields eased. Germany’s 10-year Bund yield was last at 0.79% from 0.82% yesterday. Australia’s 10-year treasury rate climbed 7 basis points to 3.07%. Japanese 10-year JGB yields closed at 0.24% from 0.23% yesterday.
Wall Street stocks dipped. The DOW closed at 34,265 (34,215 yesterday) while the S&P 500 closed at 4,403 from yesterday’s 4,401. Australia’s ASX 200 slipped to 7,450 (7,458).
Data released yesterday saw Eurozone ZEW Economic Sentiment Index beat estimates at -46.5 to -43.0. Germany’s ZEW Economic Sentiment Index was also better than median expectations, to -41.0 against -48.4. US Headline CPI (m/m) matched forecasts at 1.2%. US Core CPI (m/m) dipped to 0.3% against median expectations at 0.5%. US Redbook Index dipped to 13.4% from a previous 14.3%.

EUR/USD – The shared currency renewed its downward slide to 1.0827 after steadying earlier this week. Yesterday, the Euro was trading at 1.0865 and 1.0912 on Monday. Negotiations between Russia and Ukraine took a turn for the worse after Russia’s President Putin claimed Ukraine deviated from initial agreements. Overnight low traded was at 1.0821.
AUD/USD – a rebound in commodities enabled the Australian Dollar to edge higher against the Greenback. The AUD/USD pair closed at 0.7455 from 0.7430 yesterday. Overnight, the Aussie Battler slid to a low at 0.7399 on broad-based US Dollar strength. The overnight high traded was at 0.7493.
USD/JPY – against the Japanese currency, the Greenback eased to finish at 125.40 (125.60). The fall in US bond yields took the shine out of the USD/JPY pair. Risk appetite also eased as negotiations between Russia and Ukraine bogged down. In choppy trade, the overnight high traded was at 125.76 while the low recorded was at 124.76.
NZD/USD – the Kiwi was also buoyed by rise in resources, particularly grains. The RBNZ also meets on policy today and New Zealand’s central bank is widely expected to lift the Official Cash rate to 1.25% from its current 1.0%. The ANZ bank though is expecting a 50 bp rate hike, which if realised, would further buoy the Kiwi.

(Source: Finlogix.com)

On the Lookout: Today’s big event is the RBNZ’s interest rate policy meeting (12 noon, Sydney). New Zealand’s central bank is widely expected to raise the Official Cash Rate to 1.25% from its current 1.0%. However, some market participants (ANZ Bank) are forecasting a 0.50% hike. Whatever the outcome, expect fireworks in the Kiwi (NZD/USD) and likely the Aussie (AUD/USD) as well. Other data releases today kicked off with New Zealand’s Food Price Index in March which jumped to 0.7% from a previous -0.1%, and higher than median forecasts at -0.4%. The Kiwi (NZD/USD) rose to 0.6858 from 0.6848 opening this morning. Japan releases its April Tankan Index (no f/c, previous was 8). Japanese February Machinery Orders follow (m/m f/c -1.5% from -2%; y/y f/c 14.5% from 5.1% - ACY Finlogix). Australia follows with its Westpac Bank Consumer Confidence Index for April (no f/c, previous was 96.6. China releases its March Trade Balance (f/c +USD 22.4 billion from previous +USD 115.95 billion), Chinese March Imports (y/y f/c 8% from 15.5%), Chinese March Exports (y/y f/c 13% from 16.3%). The UK start off Europe with UK PPI Input for March (m/m f/c 2.5% from 1.4%; y/y no f/c, previous was 14.7%), UK PPI March Output (m/m f/c 1.2% from 0.8%; y/y f/c 11.1% from previous 10.1%), UK March Headline CPI (m/m f/c 0.7% from 0.8%; y/y f/c 6.7% from previous 6.2%), UK March Core CPI (m/m f/c 0.5% from 0.8%; y/y f/c 8.8% from 8.2%, and UK March Retail Price Index (m/m f/c 0.9% from 0.8%; y/y f/c 8.8% from 8.2%). The Eurozone releases its February Industrial Production (m/m no f/c, previous was 0%; y/y no f/c, previous was -1.3%. The US rounds up today’s reports with their March Headline PPI (f/c 1.1% from 0.8%), Core PPI (f/c 0.5% from 0.2%). The Bank of Canada has its Interest rate policy meeting (14 April, 12 am Sydney). The BOC is widely expected to lift its Overnight Rate to 1.0% from 0.5%.

Trading Perspective: The Fed’s hawkish stance on interest rates saw the benchmark US 10-year rate soar to 2.82% on Tuesday before slipping back to close at 2.72%. The Dollar Index jumped to an overnight high at 100.33 before dipping to its 100.30 close. The catalyst was the jump in Headline US inflation to its highest level since December 1981. However, Core Inflation eased to an annual 6.5% from forecasts at 6.6%. Inflation pressures may be peaking as some participants believe. This alone should take some of the shine of the Greenback’s impressive rally as we head into the traditionally illiquid Easter weekend. Expect more choppy trading ahead with speculators likely to pare their long US Dollar positions.

EUR/USD – The shared currency extended its slide, finishing at 1.0827 from 1.0865 yesterday and 1.0912 on Monday. Overnight, traders pushed to Euro to a low at 1.0821. While the Euro still trades heavy, one should be wary for pushing it too much further in this shortened Easter week. Expect liquidity to be at a premium. Immediate support lies at 1.0820 followed by 1.0790 and 1.0760. Immediate resistance is found at 1.0860, 1.0890 and 1.0920. Look for a choppy session today, likely range 1.0810-1.0910. Preference is to take the contrarian stance and buy dips.
AUD/USD – the Australian Dollar held its own and managed to rally modestly against the Greenback as commodity prices rebounded. The Aussie Battler closed at 0.7457 from 0.7430 yesterday. Overnight low traded was at 0.7399. For today, immediate support lies at 0.7430 followed by 0.7400 and 0.7370. Immediate resistance can be found at 0.7485, 0.7505 and 0.7535. Look for a volatile session in the Aussie today. Likely range 0.7380-0.7480. Preference is to sell AUD/USD rallies.
USD/JPY – the Greenback steadied against the Japanese Yen to 125.40 after soaring to an overnight high at 125.76. In choppy overnight trade, the USD/JPY pair slumped to a low at 124.76. On the day, immediate resistance lies at 125.75 followed by 126.05. Immediate support is found at 125.10, 124.80 and 124.50. Look for further choppy trade in a likely range today of 124.70-125.70. Prefer to sell rallies. A further slide in risk appetite will weigh.
GBP/USD – Sterling finished little changed against the Greenback at 1.3001 from yesterday’s 1.3004. Despite mostly weaker-than-forecast UK Trade, GDP and Industrial Production data, the British currency held steady. Today is another test as UK CPI, PPI and Retail Price Index are released. Immediate resistance lies at 1.3030, 1.3060 and 1.3090. On the downside, immediate support can be found at 1.2990, 1.2960 and 1.2930. Look for another roller-coaster ride in the British currency with a likely range today of 1.2975-1.3075. Preference is to sell rallies.

Have a good Wednesday ahead all. Wishing all our traders and readers a Happy and Blessed Easter. Back next Wednesday.

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