Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD weaker despite higher bond yields
The US dollar was mostly lower overnight as US shares eased lower extending a recent theme in which the greenback has been trading in line with broader risk sentiment.
Overnight, the US’s Dow Jones index was down slightly while the Nasdaq dropped 0.1%. The US ten-year bond yield climbed from 4.38% to 4.42%.
The US dollar’s favourable interest rate advantage and the monster rally in US technology stocks have seen the greenback trade in line with risk appetite for most of this year.
More recently, losses in US shares and gains in US bond yields over the last week have seen the greenback fall.
Instead, regional currencies have outperformed as US shares fell, with the AUD/USD up 0.4% and NZD/USD up 0.3% overnight. The USD/SGD fell 0.1% while USD/CNH was flat.
Gold’s gains not helping Aussie
Gold hit a new record overnight in line with big moves across commodity markets that, interestingly, haven’t had a major flow-on effect for commodity currencies like the Australian and New Zealand dollar. Instead, the US dollar has been the leader in developed FX markets.
The emphasis now turns to whether gold can sustain this move. Gold investors will need incentives for greater inflows that are more fundamentally grounded if we want to see gold prices stay sustained and continue to rise from here.
All things considered, the increase in gold prices shows the strength of the gold flow. In order to support the Federal Reserve’s cut expectations and ultimately start the next leg of inflows from discretionary funds and ETF holders to drive prices up further, inflation and jobs data must continue to moderate in the upcoming months.
That said, gold – and commodities in general – appear to be part of a “hot money” trend in which the Australian and NZ dollars just aren’t included. Instead, the USD dominates.
Australian, US housing remain strong
Ongoing strength in the Australian housing markets – house prices were higher for the fifth-straight month in March, up 0.6% according to Core Logic – and might be one more reason for the Reserve Bank of Australia to hold rates steady for longer than other major central banks.
Australian house prices reflect a similar scenario in other parts of the world. Despite a 525bp increase in Fed rates, US house building and construction jobs have held up far better than anticipated. While home sales have remained consistent, there have been oddities in other housing statistics. The sector’s anomalous performance in this cycle is most likely due to a secular housing scarcity.
The very high level of immigration is partially to blame for the fairly moderate increase in vacancies when compared to the high amount of house completions. US homebuilding should continue to get strong support for a number of years, even in the event that immigration laws change.
Aussie back near recent highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 8 – 13 April
All times AEDT
*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.
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