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Kiwi Outperforms, Keeps Bid on Hawkish RBNZ
Summary: The Dollar Index (USD/DXY), used by traders as a measure of the USD against a basket of currencies of US trade partners, rebounded 0.44% to 90.02 from 89.67 yesterday. Randal Quarles, Fed Vice-Chair for supervision, signalled that the time for the US central bank to think about slowing its pace of bond-buying is coming soon. Earlier this week, several Fed officials sought to downplay the prospects of rising inflation, which put US bond yields and the Dollar under pressure. The yield on the benchmark US 10-year treasury rose to 1.58% (1.56% yesterday). The Euro slid back under 1.22 to 1.2195 after trading to an overnight and 4-month high at 1.2263. A hawkish bent by New Zealand’s Central Bank (RBNZ) sent the Kiwi soaring to 0.73162 (overnight high) before settling at 0.7283 in New York. NZD/USD, referred to by traders as the “Flightless Bird” finished as best performing currency, up 0.9% against the Greenback. The RBNZ signalled that interest rates could rise in the second half of 2022. The Australian Dollar, however, was little changed at 0.7743 from 0.7750 yesterday. Elsewhere the USD/CAD pair rallied to 1.2122 from 1.2065. Against the Japanese Yen, the Greenback rose 0.32% to 109.13 (108.75). The Dollar was marginally lower against the Asian and Emerging Market Currencies. USD/CNH (US Dollar-Offshore Chinese Yuan) slumped 0.45% to 6.3840 (6.4100), cracking through the psychological 6.40 level. The USD buying interest at the 6.40 level pulled away which led to further selling.
While US yields ended higher, rival bond rates were mostly lower. Germany’s 10-year Bund yield dipped 3 basis points to -0.21%. Japan’s 10-year JGB yield eased to 0.06% (0.07%) while the UK Gilt ten-year rate was last at 0.75% (0.78% yesterday). In contrast, New Zealand’s 10-year treasury yield climbed to 1.86% (1.75%). Wall Street stocks ended with marginal gains. The DOW added 0.12% to 34,345 while the S&P 500 finished at 4,195 (4,187). Economic data released yesterday were few and mostly secondary. New Zealand’s Balance of Trade rose to +NZD 388 million surplus, bettering the previous surplus of +NZD 39 million. Australia’s Construction Work Done (Q1) rose to 2.4%, beating median forecasts at 2.2%. The RBNZ maintained its monetary policy, keeping its Overnight Cash Rate at 0.25%. France’s Consumer Confidence Index rose to 97, matching forecasts and from a previous 94.
On the Lookout: Economic reports released today will see a data dump (from ACY’s Finlogix). The day kicks off with Australia’s Q1 Private Capital Expenditure report (f/c to dip to 2.0% from 3.0%). European reports start with Germany’s GFK Consumer Climate Index (f/c -5.3 from -8.8). Switzerland releases its Trade Balance (f/c Surplus of CHF 4.85 bio from previous Surplus of CHF 5.82 bio). Germany’s Bundesbank President Weidmann is due to speak at an online event celebrating the 70th anniversary of the German Economic Institute). BOE MPC member Vlieghe is delivering a speech on government bond yields and growth and inflation in an online event hosted by the University of Bath. The US starts off with its Annualised Preliminary Q1 GDP report (f/c at 6.5% from 6.4%). The Preliminary GDP Price Index follows (f/c 4.1% from 4.1%). US Weekly Unemployment Claims follow (f/c 427K from 444K). US Durable Goods Orders (April) are expected to rise to 0.7% from an upwardly revised March number of 0.8% (0.5%). Core Durable Goods (excluding transportation items) are forecast at 0.8% from a previously revised upward 1.9% (from 1.6%). US April Pending Home Sales round up the day’s data dump (f/c 0.8% from previous 1.9%).
The Durable Goods Orders, a leading indicator of production is a key number for the US economy and thus the Dollar and yields.
Trading Perspective: All eyes on tonight’s key US Durable Goods Orders which are expected to rise (range 0.7% to 0.8%). Any number higher than 0.8%, 0.9% and up, would see a spike in US yields and the Greenback. A weaker Core DGO number (0.5% and lower) would trigger Dollar selling and a drop in yields. The effect on US bond yields and the Dollar will be key for any break outs of the week’s trading range. Let’s bear in mind that total net Speculative USD short (long Currency) currently total USD 15.5 billion for the week ended May 18. This compares with a net total short of USD 5.2 billion 5 weeks ago. All things being equal (ie data expectations are matched), the risk is skewed for a further Greenback rebound.
Happy Thursday and trading all.
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