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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%.
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.
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