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  • The currency markets were dominated by the strengthening the greenback, which toppled the neckline resistance of the H&S and went on to test the 97 handle, a level that has not been tested since 22nd Feb.  

The DXY traded between a ran96.66 and 97.01 while the US 10yr treasury yield perked up to more respectable levels from 2.73% to 2.75%, with US data exceeding expectations. The 2yr yield also climbed, moving up from 2.54% to 2.57%. Despite strong data, the futures markets continued to price little chance of any further Fed rate hikes in this cycle.

The US Feb non-manufacturing survey was outstanding, jumping from 56.7 in Jan to 59.7 in Feb (vs 57.4 expected). This was a three-month high and close to the 13-year high of 60.8 seen in Sep. The encouraging parts of the data in the detail was a 13-year high in new orders.  

“Further friendly trade tariff talk and reopening of the US government were likely catalysts,” analysts at Westpac explained.  

Currency action

In other currencies, EUR/USD dropped from 1.1330 to 1.1290. Another key component in the DXY, the Yen, made a fresh two-month loss vs the greenback at 112.14 although rising eventually back down to 111.85 in late North American markets. The third largest component to the DXY, the pound, traded heavily first of all, down to test 1.3100 the figure before pulling a bid out of the hat all the way back to 1.3175 – living up to its unpredictable self yet again.  

As for the antipodes, the Aussie dropped to a fresh low down at 0.7059 but then recovered a little space back to 0.7085 as the dollar gave back some ground later in the day. The bird was taken hostage to 0.6769 and followed its neighbour, the Aussie, higher again back to 0.6800 – garnering some support from the GDT dairy auction up 3.3%; (Whole milk powder + 6.0%, skimmed milk powder -4.3%). USD/CNH was an additional focus following the Chinese downgrades to GDP forecasts for 2019 that fell from 6.55 to between a range of 6.00%-6.50%. The price of USD/CNH moved from 6.7013 pivots to a high of 6.7121 on news of stimulus measures to help balance the economy and strong US data.  

Key notes from overnight:

  • More comments from RBA Lowe: Q4 and Q3 GDP likely to show growth significantly below trend
  • US stocks closed in dubious territory for a sixth consecutive session

Key events ahead in Asia:

It is all about the Aussie today, We have already heard from RBA’s Lowe in early Asia, speaking on the very hot topic of “The Housing Market and the Economy” in Sydney. However,  there has not been much action around his comments and instead, markets are awaiting Australia’s Q4 national accounts data at 11:30am Syd/8:30am Sing/HK.  

“After mostly softer partial data Mon-Tue, the Bloomberg median forecast has slipped from 0.5%qtr to 0.3%. But the mode is 0.2%qtr, which is Westpac’s call, producing 2.4% over the year to December. The arithmetic of our Q4 GDP forecast is: domestic demand +0.4%; inventories flat; and net exports -0.2ppts. Key uncertainties are the consumer and the drought – with a lack of partials around consumer spending on services and on farm inventories. Revisions are also a wildcard – they were sizeable in Q2 (to the upside) and sizeable in Q3 (to the downside),” the analysts at Westpac explained.