Written by Steven Dooley and Shier Lee Lim
USD lower after Treasury update
Global markets received a late boost overnight after the US Treasury announced a smaller than expected demand for March-quarter borrowing – down from USD816bln to USD760bln – signaling the US government was in a somewhat better fiscal position than previously thought.
The news had a most substantial effect in US bond yields with the ten-year bond dropping from 4.15% to 4.07% overnight. US shares also gained.
The US dollar fell in line with weakness in US bond yields.
The New Zealand dollar was the largest beneficiary with the NZD/USD up 0.6%.
In Asia, the USD/JPY fell 0.4% while the USD/SGD and USD/CNH were both flat.
The action was more muted in Europe with the euro extending last week’s losses after the European Central Bank raised concerns about European growth on Thursday. The EUR/USD fell 0.2%.
The AUD/USD gained 0.5% ahead of today’s retail sales numbers. A recent rebound has been seen in both the monthly and annual series, but the December numbers have historically missed expectations as more consumers front-load Christmas spending into November.
US confidence, job openings due
In a big night for US data, both the job openings and labor turnover (JOLTS) and consumer sentiment numbers are due.
Tuesday’s consumer confidence forecast is for a 7.3 percentage point gain to 118.0 in January. The preliminary University of Michigan consumer sentiment index rose by 9.1 percentage points. Since December, the consumer economy has been becoming better.
While stock prices have continued to grow, gasoline costs fell in January as well. Although overall labor numbers have been inconsistent, the labor disparity reached a five-month high of 27.5 in December. As a result, we anticipate more seasonal volatility to begin the year.
We might see less downside pressure on USD in H2 as the US growth slowdown could turn out to be more gradual than expected. March Fed decision data dependent, so we expected a major focus on Jan jobs report due later this week. Some unwinding of USD shorts already occurred.
GBP resilient as inflation remains elevated
The British pound has remains remarkably resilient in January partly due to elevated UK inflation.
Because the BRC retail data is provided before to the official CPI data, it is a valuable poll. It also has a tendency to lag behind that report, though.
Shop price inflation momentum (including ex-food) has been slowing down in previous months, but it spiked back up in December, raising possible last-mile worries. Base effects should cause the year-over-year rate of inflation to sharply decline, given that retail prices increased by 0.7% in January of last year. Our attention will be directed towards the seasonally adjusted underlying month-over-month figures.
After the fourth-quarter rally stalled close to the 1.2726 Jul 61.8% retrace, cable is still sculpting a possible short-term distribution pattern, potentially helping the GBP to further gains.
Aussie, kiwi back to recent highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 29 January – 3 February
All times AEDT
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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.
