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Further confirmation of a dichotomy between the path for US monetary policy and that of other developed markets like Japan and the Eurozone has allowed the big dollar to remain well supported this week, with the DXY on its way to clawing back yesterday’s consolidative losses.    To signal to the market that they would move ahead with their Quantitative Easing program at whatever the cost, it was brought to light that during the overnight Asian session the Bank of Japan scooped up T-bills which were trading with negative yields, effectively paying the Japanese Treasury to lend it money.  The outflow of capital from the Eurozone after last week’s further cut to interest rates has created demand for short-term Japanese debt which has pushed yields into negative territory, yet this has not stopped the BoJ from pushing ahead with their money market operations.    The purchase of Japanese debt by the BoJ at negative yields was addressed by the Deputy Governor, though he saw no difficulties in continued money market operations from the central bank, with the BoJ committed to carrying out its QE program.    With negative yields seemingly not issues for the BoJ, participants are assessing the likelihood of this nuance signaling additional purchases may be around the corner for the central bank, which consequently has brought about another bout of Yen selling, with USDJPY ramping into the high-106s.

The Aussie has also not been able to escape from the clutches of broadly stronger USD demand, with AUDUSD shedding close to three big figures from the high of 0.94 at the end of last week.    A soft commodity market, questions about the strength of the Chinese economy and dovish-currency rhetoric from the Reserve Bank of Australia have all aided in the slide of the currency, though the tinder that sparked the forest fire was most attributable to a jump in yields with a sell-off in global bonds, pulling capital away from the commodity-correlated currency.    A decent rebound for the Australian labour market after last month’s dreary net loss in jobs could help the antipodean currency find a short-term floor, though anything materially less than the creation of 12k new jobs would likely aid the bears in their quest to push AUDUSD into the high-0.90s.

As we get set for the North American open, the mixed-sentiment picture painted throughout the Asian and European session is filtering over to the West, as S&P futures are giving back earlier gains and treading water slightly in the red before the opening bell.    Hydrocarbons are continuing to struggle as Brent flirts with giving up the $99/barrel mark, with copper and gold also lagging on the session as the USD outperformance endures.    The Loonie is softer against the big dollar this morning, though managing to hold its ground better than the Aussie and Yen.    After an unsuccessful attempt to hold the 1.10 level yesterday, USDCAD is back to pivoting around the important psychological level ahead of the opening bell, with little on the domestic economic calendar to drive price action, relegated to taking cues from yields south of the 49th  parallel as it relates to demand for the USD.

Further reading:

USD/JPY continues higher – what are the next levels?

AUD/USD: Trading the Australian Employment Change