Fed Hints at Future Taper; US Yields, Dollar Rise, Stocks Slump

  • Michael Moran , Senior Currency Strategist at ACY Securities

  • 20.05.2021 11:15 am
  • trading

Risk-Off; NZD, AUD Sink, EUR, GBP, SGD Drop, US 10Y Rate Up

Summary: The Fed’s FOMC April minutes showed that US policymakers maintained their cautious stance, with some willing to discuss tapering in future meetings. Wall Street stocks slumped while US bond yields and the Dollar rose. The benchmark US 10-Year Treasury yield climbed to 1.69%, from 1.64% yesterday, settling at 1.68% in late New York trade. Precious metals fell. Silver lost 1.55% to USD 27.70 (USD 28.30) while Oil prices slid. Brent Crude was down at USD 66.70 (USD 68.75 yesterday). Risk-off dominated the close of US trade with a sell-off in Crypto currencies benefitting the Greenback. New Zealand’s Kiwi (NZD/USD) sank 0.95% to 0.7167 (0.7244) to finish as worst performing currency on the markets risk-off stance. The Australian Dollar was pressured lower to 0.7725 (0.7795). Against the Canadian Loonie, the Greenback (USD/CAD) rose to 1.2125 from 1.2060. The Euro reversed its gains, sliding back to 1.2175 from 1.2225. Sterling finished 0.46% lower at 1.4122 (1.4187) despite higher British consumer prices. Overall US Dollar strength and an overbought speculative GBP market pounded the British currency lower. USD/DXY (Dollar Index), a measure of the value of the Greenback relative to the value of a basket of currencies of the majority of the US’s trading partners, rallied 0.48% to 90.17 (89.77 yesterday). The Dollar was higher against the Asian and Emerging Markets. USD/SGD (US Dollar vs Singapore Dollar) rebounded to 1.3350 from 1.3290, up 0.3%. The DOW settled lower at 33,863 (34,070) while the S&P 500 lost 0.2% to 4,112 (4,127 yesterday). Other global bond yields were steady. Germany’s 10-year Bund yield was last at -0.11% (-0.11%). Australia’s 10-year rate closed at 1.76% (1.77% yesterday).
Data released yesterday saw Australia’s Q1 Wage Price Index up at 0.6%, matching the previous quarter’s 0.6%. Japan’s Revised Industrial Production in April slipped to 1.7% from 2.2%. Britain’s Annual Headline CPI in April rose 1.5%, matching expectations. UK Core CPI also matched forecasts at 1.3%.  Eurozone April Final Core CPI eased to 0.7% from 0.8%. Canada’s Headline CPI (April) was up at 0.5% which matched March’s 0.5%.

  • EUR/USD – The Euro slid 0.38%, reversing 4 days of gains, to finish at 1.2175 in late New York. This followed the release of the FOMC’s April minutes. The rise in the US yields and overall Dollar strength weighed on the shared currency. Speculative long Euro bets were forced to cover some of their positions.
  • AUD/USD – Australia’s Battler slumped under the weight of the stronger Greenback and market’s risk-off mood. The Aussie closed at 0.7725 after hitting an overnight low at 0.77109. Australia releases its Employment report later today (11.30 am Sydney).
  • NZD/USD – The high-flying Kiwi had its wings clipped and reversed its upward momentum following the rise in US yields, lower equities amidst a souring of risk appetite. NZD/USD slid to an overnight low at 0.71514, settling at 0.7167 (0.7245 yesterday).
  • USD/SGD – The Greenback reversed its fall against the Singapore Dollar, climbing to 1.3350 from 1.3295 yesterday. The rise of Covid-19 cases in neighbouring Malaysia, which hit a record high yesterday weighed on the “Sing”. Overall USD strength also lifted the Greenback against the Sing and other Asian currencies. USD/CNH rose to 6.4385 (6.4235) while USD/THB was up at 31.45 (31.33).

(Source: Finlogix.com)

On the Lookout: Will the hint of a taper tantrum from the Fed in the days ahead provide a turnaround for the Greenback and lead to more gains? Attention now shifts to the economic data releases in the days ahead. Global Manufacturing and Services PMI’s are due tomorrow.
Today kicks off with Japan’s Core Machinery Orders for April, forecast to rise 5.1% from -8.5% in March. Japan also releases its Trade Balance. Australian follows with its M1 Inflation Expectations. Australia’s April Employment report (11.30 am Sydney) follows, which will be closely monitored. The Australian economy is expected to have added 17,500 jobs in April, following March’s surge of 70,700. The Unemployment Rate is forecast unchanged at 5.6%. New Zealand releases its Annual Budget (12 noon, Sydney). Europe sees German PPI (April) (f/c 0.8% from 0.9%) and the Eurozone Current Account. The UK releases its Conference Board Industrial Orders Expectations. North American data starts off with Canada’s ADP Non-Farms Employment Change for April (March saw 634.8 K). The US reports its Philadelphia Fed (Philly Fed) Manufacturing Index (May), forecast to slip to 40.8 from 50.2. US Weekly Unemployment Claims are expected to drop to 453,000 from 473,000 the previous week.

Trading Perspective: Asian markets will be content to consolidate recent ranges with the US Dollar keeping its bid until tonight’s data releases. Traders will focus on the Philly Fed Manufacturing Index and US Weekly Jobless Claims. Stronger than forecast prints for both will see further unwinding of speculative long Currency bets against the Greenback.
Watch the US yields, and the differentials. Overnight the US 10-year bond yield finished up 4 basis points while those of its rivals were flat. The differential has widened in favour of US yields and the Dollar. Keep an eye on these rate differentials, because any further widening in favour of the US will see a more sustained Dollar rally.

  • EUR/USD – Bullish sentiment which has engulfed the Euro in the past few trading days was dented overnight. The Euro reversed 4 straight days of gain, sliding 0.38% overnight to 1.2175. We reported earlier this week that speculative long bets in the Euro and Pound were at excessive levels. Immediate resistance for the Euro lies at 1.2210 and 1.2240 for today. We can find support at 1.2160 (overnight low 1.21599) followed by 1.2130 and 1.2100. Look to trade a likely range today of 1.2130-1.2230. The preference is still to sell rallies.
  • GBP/USD – The British Pound slumped 0.46% to close at 1.4120 (1.4187 yesterday). Despite higher UK consumer inflation data, Sterling long bets headed for the exits following the release of the US Fed’s minutes. Higher US yields led to a stronger Greenback which saw the British currency pounded. GBP/USD has immediate support at 1.4090 followed by 1.4040 and 1.4000. Immediate resistance can be found at 1.4160 and 1.4200. Expect a likely trading range between 1.4070-1.4170. Respect the range, but Sterling is starting to feel soggy.
  • AUD/USD – The risk-off mood which resulted in lower stocks and higher US bond yields weighed on the Battler. The Aussie slumped to 0.77109 overnight lows following the release of the FOMC minutes. AUD/USD rallied to settle at 0.7727 (0.7795 yesterday) for a loss of 0.77%. AUD/USD has immediate support at 0.7710 followed by 0.7670/80. Resistance can be found at 0.7740 and 0.7780. Australia’s economy is expected to have added 17,500 jobs in April from March’s 70,700. Anything less than 10,000 jobs will see the Aussie test lower. Keep an eye on the Unemployment and Participation rate too.
  • USD/SGD – The US Dollar gained back 0.38% against its Singapore counterpart to close at 1.3350 from 1.3295 yesterday. An overall stronger Greenback and higher US yields will continue to push the Singapore Dollar and other Asian currencies lower. Contagion fears will also weigh on the Sing. Singapore shares a border with Malaysia, where Covid infections rose to a record high. According to the Singapore Straits Times, Covid-19 cases hit a new record high of 6,075 in Malaysia, the highest since the start of the pandemic in January last year. USD/SGD has immediate resistance at 1.3370 followed by 1.3420. Immediate support can be found at 1.3310 and 1.3280 (overnight low 1.32809). Look to buy any USD/SGD dips today.

Happy Thursday and trading all.

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