AUD, NZD Outperform, DXY Flat; FOMC, Fed Speak Next

US Yields Ease, Euro Climbs; China Trims Prime Loan Rate 

Summary:

The Aussie (AUD/USD) and Kiwi (NZD/USD) outperformed, buoyed by a subdued US Dollar amidst lower treasury yields. The Aussie climbed to 0.6553 (0.6530) while the Kiwi found its wings, soaring to 0.6167 from 0.6140. 

Yesterday, the People’s Bank of China kept its 1-year Prime Loan Rate unchanged, at 3.45%. However, the PBOC trimmed its 5-year Prime Loan Rate to 3.95% from 4.20% which was more than analysts had expected, which was a cut to 4.10%.  

It was the first cut since June 2023. Chinese policy makers were seen as taking decisive steps to bolster its real estate sector amid economic challenges. 

The Dollar Index (DXY), which gauges the value of the Greenback against a basket of six major currencies, finished flat at 104.27. Ahead of the release of the Federal Reserve’s FOMC meeting minutes, as well as speeches from several Fed officials, markets had little incentive to drive FX. 

Every yield tells a story. The US 10-year treasury rate slipped 2 basis points to 4.26%. The two-year US bond yield settled at 4.60% (4.64% yesterday). Other global treasury rates were lower.

Against the Japanese Yen (USD/JPY), the Dollar dipped to 149.97 from 150.13 previously, weighed by the lower US bond yields. Japan’s 10-year JGB rate was unchanged, at 0.72%. 

Sterling (GBP/USD) ground higher to 1.2620 from 1.2597. The British currency soared to an overnight high at 1.2669 after Bank of England Governor Andrew Bailey said that the British economy could fare better than expected. 

The Euro (EUR/USD) rallied to 1.0808 (1.0780). The shared currency soared to an overnight high at 1.0839 after the Eurozone Current Account Surplus climbed to +EUR 31.9 billion from EUR 31.7 billion previously. 

The US Dollar finished marginally lower against the Asian and Emerging Market Currencies (EMFX). USD/CNH (Dollar-Offshore Chinese Yuan) dipped to 7.2025 from 7.2110. Against the Singapore Dollar, the Greenback (USD/SGD) slid to 1.3437 from 1.3460. 

Global stocks finished with modest losses. The DOW was last at 38,590 (38,620) while the S&P 500 settled at 4,977 from 5,010 yesterday. Germany’s DAX closed at 17,070 (17,090).

AUD/USD – The Battler rebounded against the US Dollar, climbing to an overnight high at 0.6579 from yesterday’s finish at 0.6527. In choppy trade, the Aussie settled at 0.6550. The Australian Dollar outperformed, finishing up against the other currencies.NZD/USD – New Zealand’s Kiwi, also referred to as the flightless bird, found its wings, soaring to 0.6191 overnight high, before easing to settle at 0.6165 (0.6150 yesterday). New Zealand’s Global Dairy Trade Index rose to 0.5%, beating estimates at -1%.EUR/USD – the shared currency rallied against the Greenback to 1.0808 from 1.0780 yesterday. It was the highest close in the Euro in nearly 3-weeks. A higher than forecast Eurozone Current Account Surplus and a generally weaker Greenback lifted the Euro.USD/JPY – Against the Japanese Yen, the Dollar dipped to 149.97 from 150.13 yesterday.The drop in US treasury bond yields weighed on this currency pair. In contrast, Japan’s 10-year JGB yield was unchanged, at 0.72%. The overnight low traded was at 149.68.

On the Lookout: 

Today’s economic calendar is heavy ahead of the Federal Reserve’s release of the latest FOMC meeting early tomorrow morning (Sydney 6 am, 22 Feb). Several central bank and Federal Reserve heads are scheduled to speak. Germany’s Bundesbank President Joachim Nagel, Bank of England MPC member Swati Dhingra and Fed FOMC members Michelle Bowman and Ralph Bostic are expected to speak at various functions around the globe.  

New Zealand kicks off today’s data releases with its Quarterly PPI Input (f/c 0.4% from 1.2% - ACY Finlogix) and PPI Output (f/c 0.5% from 0.8% - ACY Finlogix). Japan follows next with its Reuters February Tankan Index (f/c 7 from 6 previously – ACY Finlogix). The Tankan Index is a key economic indicator which has an impact on the currency, monetary policy, and the stock market. Japan also releases its January Balance of Trade (f/c – JPY 1929.5 billion from JPY 2.1 billion – ACY Finlogix). 

Japan’s January Exports follow (y/y f/c 9.5% from 9.8% - ACY Finlogix) and Japanese January Imports (y/y f/c -8.4% from -6.8% - ACY Finlogix). Australia follows with its Q4 Wage Price Index (q/q f/c 0.9% from 1.3%; y/y f/c 4.1% from 4% - ACY Finlogix). The UK starts off Europe with its January Public Sector Net Borrowing (f/c GBP 9.2 billion from -GBP 6.85 billion – ACY Finlogix), UK February CBI Industrial Trends Orders (f/c -23 from -30 – ACY Finlogix). 

The Eurozone releases its February Flash Consumer Confidence Index (f/c -15.6 from -16.1 – ACY Finlogix). Canada starts off North America with its Canadian New Housing Price Index for January (m/m f/c -0.1% from 0%; y/y f/c -0.7% from -0.9% - ACY Finlogix). 

Trading Perspective: 

The Dollar Index (DXY) finished flat ahead of tomorrow morning’s release of the FOMC meeting minutes. The Greenback though, is poised for a move, one way or the other, albeit in volatile fashion.

Several central bank heads are scheduled to speak as well. And there is the upcoming economic calendar which sees some key data releases. 

The easing in US bond yields saw some currencies lift with the Aussie and Kiwi Dollars outperforming. Yield differentials widened in favor of the two antipodean currencies. 

Expect more choppy trade within the established ranges ahead of scheduled data releases and tomorrow’s release of the FOMC meeting minutes. Happy days.

AUD/USD – Look for further choppy trade in the Aussie today. Immediate resistance lies at 0.6580 followed by 0.6610 and 0.6640. Immediate support can be found at 0.6520 followed by 0.6490 and 0.6460. An overall weaker Greenback could send the Aussie soaring above 0.66 cents. A fall in risk appetite combined with a robust US Dollar could send the Aussie tumbling to 0.64 cents and lower. Look for more choppy trade, likely between 0.6480-0.6580. Trade the range, nice and wide. Prefer to sell Aussie rallies.  EUR/USD – The Euro rallied modestly against the US Dollar to finish at 1.0808, its highest close in nearly 3 weeks. Look for immediate resistance at 1.0840 (overnight high traded was 1.0839). The next resistance level lies at 1.0870 followed by 1.0900. On the downside, immediate support is found at 1.0790 followed by 1.0760 (overnight low traded was 1.0761). The next support lies at 1.0730. Look for another choppy trading day in the Euro, likely between 1.0750-1.0850. Trade the range, preference is to sell into Euro strength.USD/JPY – The Dollar eased against the Japanese currency to 149.97 from 150.13 yesterday. Look for immediate support at 149.60 (overnight low traded was 149.68) followed by 149.30. On the topside, immediate resistance lies at 150.30 (overnight high traded was 150.44). The next resistance level is found at 150.70. Look for another choppy session today, likely between 149.50-150.50. Trade the range, nice and wide. GBP/USD – Sterling edged higher against the Greenback to finish at 1.2620, up from 1.2597 yesterday. Look for immediate resistance on the British currency at 1.2650 followed by 1.2680 today. The overnight high traded for Sterling was 1.2669. On the downside, immediate support lies at 1.2590 followed by 1,2560. The overnight low traded for Sterling was at 1.2579. Look for a likely trading range today of 1.2570-1.2670 today. Trade the range, the preference is to sell Sterling on strength.Have a top Wednesday ahead all, happy trading. 

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