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USD

28 Jul 2023

BoJ Loosens Its Grip

The tide looks to be (finally) turning when it comes to the Bank of Japan’s ultra-accommodative policy stance, albeit slowly. At today’s meeting, while the BoJ maintained its policy rate at -0.1% and its 10-year bond yield target at “about 0%”, its yield curve control framework was adjusted. Rather than having a rigid +/- 0.5% band around its 10-year bond yield target, things will now be controlled “flexibly”. Importantly, the BoJ also announced that it will offer to purchase 10-year Japanese government bonds at 1% each business day. In our mind this provides a guide to the BoJ’s new upper...

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27 Jul 2023

Shake, rattle & roll

• Divergence. A ‘dovish’ ECB hike & solid US data weighed on the EUR. Reports the BoJ could tweak its policy settings today also boosted the JPY.• AUD weaker. The USD rebound pushed down the AUD. Locally, retail sales are due today. The US PCE deflator & employment cost index are released.• BoJ in focus. Higher inflation means the BoJ’s ultra-loose stance is untenable. A change would be step along the normalisation path & could jolt markets. Markets were jolted overnight by the combination of a ‘dovish’ ECB rate hike, strong US data, and reports the Bank of Japan could...

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27 Jul 2023

Dollar pushes higher on US exceptionalism in growth and rates

The euro is weakening against the dollar after the European Central Bank executed an (arguably) dovish rate hike and updated numbers showed the US economy growing more quickly than expected in the second quarter. High-beta currencies like the Australian and Canadian dollars and the Mexican peso are up, while other risk proxies – like the VIX equity “fear index” and the Merrill Lynch Option Volatility Estimate (MOVE) bond market measure – are trending down as markets buy into a “Goldilocks” scenario for the economy, with growth remaining relatively robust even as inflation pressures subside.   North America The US economy expanded...

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26 Jul 2023

Data dependent Fed, lower Australian CPI

• Fed hike. Another rate rise from the US Fed. But it remains data dependent when it comes to future moves. USD a bit softer, tracking a slight dip in US yields.• AUD weaker. AUD underperforms after Q2 CPI undershot predictions. In response markets have reduced RBA rate hike expectations.• AUD events. ECB meeting, US GDP & jobless claims tonight. Australian retail sales & BoJ announcement tomorrow. RBA next week. The US Fed decision and Chair Powell’s press conference were in focus overnight. As widely expected, the US Fed hiked interest rates by another 25bps, taking the target range up...

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26 Jul 2023

Price action slows ahead of Fed decision

Markets are looking essentially directionless as traders batten the hatches ahead of this afternoon’s Federal Reserve decision. The dollar is seeing some selling, but is holding near a two-week trade-weighted high against high-beta currencies and the euro, equity futures are mixed, and Treasuries are broadly flat.    North America Today’s biggest macroeconomic event will occur around 1:30 this afternoon, when the Bank of Canada is scheduled to release a summary of deliberations from its early July meeting. I kid: most market participants (including myself) will likely be too busy shotgunning espresso ahead of the Fed decision to pay it much heed – and Governor...

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