Global overview
US bond yields have continued to drive higher after last week’s Federal Reserve decision – pushing the USD index to new six-month highs. FX markets were mostly lower across Asia yesterday. Tonight, US consumer confidence is seen as key for the Fed’s policy stance.
Bond yields drive USD higher
The US dollar index struck new six-month highs on Monday as last week’s Federal Reserve decision continued to force bond yields higher.
The US ten-year bond yield climbed to 4.53% overnight – the highest level since 2007 – after the Fed said last week that official US interest rates would likely still be above 5.00% at the end of 2024. The two-year bond yield also gained.
The Fed’s commentary last week sparked another leg higher in the greenback, pushing the EUR/USD and GBP/USD to six-month lows, and the USD/JPY to 11-month highs.
Asian FX mostly lower (except NZD)
The stronger US dollar sent currencies around the region lower.
The AUD/USD fell 0.3% with the Aussie weaker in most markets.
The NZD/USD was flat, but the NZD was mostly stronger in other markets with the NZD/AUD up 0.4% as it neared six-week highs.
The USD/SGD gained 0.1%.
The USD/CNH climbed 0.2% as the pair moved back above the key 7.30 level.
“No landing” to be tested by consumer
Economic activity has remained strong despite the massive shift higher in official interest rates – and this is why central banks, including the Fed, continue to warn of further rate hikes.
After a recent debate about whether the US economy would suffer a “soft” or “hard” landing, some commentators are hoping for another scenario – a “no landing” in which the US economy avoids a recession entirely.
The main driver of the better economic activity has been the ongoing resilience of the consumer with the US consumer leading the charge. Remarkably, US consumer confidence trended higher from mid-2022 to mid-2023 even as the Federal Reserve continued to push rates higher.
Since then, US consumer confidence reached a two-year peak in July, but fell in August.
Tonight, the September reading might provide some detail on whether consumer confidence is turning from highs – and whether the Fed be able to back away from further hikes.
USD extends gains
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 25 – 29 September
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
