Chartbook: February 27
Slides from this week’s internal trading call:
CNY
Another US inflation surprise
• Higher US rates. Strong US inflation data generated another repricing in US rate expectations, propelling the USD even higher.• Fed needs to do more. Sticky inflation means the US Fed has more work to do. Positive US data can reinforce the upswing in US yields.• AUD slump. AUD is now ~6% below its early-February peak. Will this weeks Australia/China data provide an offset to the stronger USD? The outlook for US Fed policy continues to drive markets. US rate hike expectations took another leg higher on Friday, pushing US bond yields back up towards their peaks. This in turn...
Currency Market Sub-Plots Lift Greenback
The dollar is creeping upward as conflicting cross-currents in the foreign exchange markets contrive to keep most majors tightly rangebound. Yields are broadly flat, and equity futures are setting up for a slightly weaker open. Mexico’s Banxico yesterday became the second central bank—after the Reserve Bank of Australia—to defy increasingly-dovish policy expectations, sending the peso soaring by raising rates by half a percentage point in a move that surprised virtually every observer. In a statement accompanying the decision, policymakers said “Given the dynamics of core inflation, on this occasion it is necessary to continue with the magnitude of the reference...
Dollar rises as markets brace for strong jobs number
The dollar is climbing against all of its major rivals as traders buy insurance against another strong jobs report. Economists think US non-farm payrolls, out at 8:30, will rise by 200,000 in December, with the unemployment rate holding at 3.7 percent. The “whisper number” on Wall Street appears closely aligned, with most market participants prepared for a print between 150,000 and 250,000 that keeps the Federal Reserve on a tightening trajectory – suggesting that a buy-the-rumour, sell-the-news dynamic could hit the greenback in the minutes after the release. The Canadian dollar remains on a defensive footing even as Statistics Canada...
Conflicting narratives keep dollar rangebound
The trade-weighted dollar flatlined overnight as optimism surrounding China’s reopening process helped offset cautious commentary from Federal Reserve officials. The pound and euro are giving back some of yesterday’s gains as falling inflation prints put pressure on yields, and the Canadian dollar is down slightly on the day – but has gained on a year-to-date basis along with other commodity-linked currencies. Currency markets shrugged yesterday when a record of the Federal Reserve’s December meeting was released, showing that officials thought “substantially more evidence” of easing inflation would be needed before rate hikes could pause. Central bankers warned “an unwarranted easing...