Forex today: China noise induced dollar tailspin ahead of Aussie retail sales
The early part of the FX day was dominated by the noise that Chinese officials recommended slowing or halting buying of US Treasuries forcing a knee-jerk rally in the single currency on a sell-off in the greenback to 1.2018 highs.
There was a subsequent break below 92 in the DXY to 91.92 before the dollar climbed back on the day to 91.41 in the DXY when US rates rallied higher with the benchmark treasury yields extending on a break of a thirty-year-long downtrend.
The Chinese news came from a Bloomberg source and in a report that claimed unnamed China officials had recommended slowing or halting purchases of US treasuries. (US 10yr treasury yields rose from 2.54% to 2.60%, (the highest since March 2017). However, US 10yr yields then dropped back to 2.56% while the 2yr treasury yields spiked from 1.96% to 1.98% on the news before decaying back to 1.97% into the close.
Dallas Fed President Robert Kaplan was speaking and is expecting the Fed to hike rates three more times concerned about the US economy overheating. Fed fund futures priced the chance of another rate hike in March at 68%.
EUR/USD traded between 1.1923/18. The Yen rose from 112.35 to 111.27 and USD/JPY continued to bleed pips into the close despite some recoveries in some of the US stocks, with the S&P to 2750 but the DJIA licking wounds throughout the session down at 13,225 the low. Sterling ended down -0.14% and traded with a range of 1.3559-1.3504, closing at 1.3520, the high made on the back of the Chinese news (certainly not the poor industry data from overnight) weighing on the greenback.
The Loonie was chaotic on the NAFTA headlines and of ‘sources’ story of the Trump pulling out, trading between 1.2427 and 1.2583 - MXN slammed late as well.
AUD rose from 0.7810 to 0.7867 helped by a recovery in commodity price. NZD climbed from 0.7160 to 0.7230 – the highest since Oct 2017. AUD/NZD made a roundtrip from 1.0910 to 1.0871 (one-month low) and back. Gold was bid on its safer haven staus on back of higher yields while WTI rallied on storage draw.
Key notes from US session
- Wall Street ends day lower on risk aversion
- China and US Treasuries - BBH
- China officials reportedly considering halting Treasury purchases - Westpac
- Canada expects Pres. Trump to pull US out of NAFTA – Reuters
- USD/CAD jumps toward 1.2600 as Loonie tumbles on NAFTA concerns
- Crypto Today: Bitcoin retraces portion of daily losses, stays below $15K
- Fed's Bullard: Inflation expectations may have drifted below the Fed's target
- United States 10-Year Note Auction climbed from previous 2.384% to 2.579%
- Fed's Kaplan: Expects 3 rate hikes in 2018 as 'base case'
The day ahead in Asia
Analysts at Westpac offered their outlooks for the day ahead as follows:
- Australia: Nov retail sales are seen to rise 0.4% following Oct’s 0.5% increase which saw the annual pace fall to 1.8%. Westpac forecasts a 0.3% increase for Nov with business surveys suggesting modestly improved retail conditions while consumer sentiment recovered somewhat through Q4.
- Euro Area: Nov industrial production is released for the region after German industrial production surprised to the upside earlier in the week, +3.4%. The Dec ECB meeting minutes are unlikely to provide too much new detail but may offer some different views among members relating to the future of the asset purchase program.
- US: Dec PPI comes out ahead of tomorrow’s CPI release. Consensus is for a 0.2% increase