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  • Forex today sent the dollar on the retreat to the 23.6% Fibo retracement in a significant slide despite elevated yields.  

The US 10yr treasury yield rose from 2.66% to 2.69% (most of this in Asia), while 2yr yields rose from 2.49% to 2.51%. However, the move is likely only corrective technically as there was no significant news to underpin a sustained move.  

On the other hand, futures markets see little chance of further Fed rate hikes in this cycle, with just a 10% chance of a cut by December. We get the RBNZ today, which could spring some life back into the dollar on an expected dovish tilt, but it will only be after the presser, an hour later, that will conclude the event one way or the other from which point the dollar will likely gain a sustained traction into key domestic events such as CPI and retail sales this week.  

Data is going to be especially key for the dollar as sound bites from Sino/US trade talks sound promising as do the announcement from congressional negotiators that the framework of a deal to fund the government was in place, averting the need of another Government shutdown.  

Currency action (Analysts at Westpac offered a snapshot of the key movers in the G10s overnight):

  • “The US dollar generally weakened, with only safe havens JPY and CHF softer against USD among the G10 currencies.
  • EUR/USD rebounded from a low of 1.1258 to 1.1340, GBP/USD from 1.2840 to 1.2900.
  • USD/JPY consolidated recent gains around 110.50.
  • AUD/USD rose from 0.7065 to 0.7100. NZD underperformed, tracking around 0.6735. Hence AUD/NZD extended its gains on the day to 1.0545, up 0.5%, perhaps in anticipation of a dovish tilt by the RBNZ today.”

Key notes from US session:

  • DJIA snaps a losing streak as indices close at 2019 high on optimism over trade and US government shutdown

Key events ahead:

  • When is the RBNZ and how might it affect NZD/USD?