Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD index at two-week highs
The US dollar climbed back to two-week highs overnight as rising bond yields supported the greenback.
The Australian dollar was one of the hardest hit – down 0.6% despite a hotter than expected monthly inflation report yesterday. The annualised monthly inflation gauge rose from 3.6% in March to 3.6% in April.
Financial markets don’t see a full 25bps cut priced in from the Reserve Bank of Australia until June 2025.
The kiwi was also lower, with NZD/USD down 0.5% as it fell from the ten-week highs seen on Tuesday.
The greenback was higher in Asia – the USD/JPY gained 0.3% and USD/SGD climbed 0.2%.
Most notably, the USD/CNH neared the highest level since November.
Bond yields bounce back
US bond yields are on the rise again and have helped the dollar record its best day in a month as the correlation between the two continues climbing.
Demand for Treasury auctions has been poor this week with the bid to cover ratio for the 2- 5- and 7-year government bonds falling short of expectation, setting multi-month lows.
The large issuance of new debt and the quantitative tightening program of the US central bank continue to support higher yields under the conditions that economic momentum holds up in the coming quarters. One should not read too much into one week of weak demand for Treasuries.
However, auctions have become market moving events and will have to be watched carefully for signs of falling demand.
Thai manufacturing headwind for THB
In line with increasing exports of manufactured products, we anticipate that the manufacturing production index (MPI) growth would pick up to -0.5% y-o-y in April from -5.1% in March, thanks to low base effects and better automobile output.
This suggests that MPI growth increased to 1.0% from -2.8% on a sequential basis.
With the seasonally low tourism period approaching, a persistently negative trade deficit, and a resurgence of political noise, the THB has been unable to get much support and is back near two-year lows.
Chinese yuan falls to lows
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 – 31 May
All times AEST
*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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