A pervasive rise in yields may propel further USD gains

Posted on April 23rd, 2018

We see the recent resurgence in US yields as potentially the most important driver in the coming week or longer.  The resumption of the rise in US yields in the last week appears related to a more persistent underlying trend.  It has been supported by a rise in commodity prices, but occurred despite weaker confidence […]

AUD/NZD struggles; has NZD become less risk-sensitive?

Posted on April 14th, 2018

AUD/NZD has fallen back to 1.05 for the first time since July last year; do fundamentals justify this? Will it last? Below is our tour de force analysis of the pair covering rates, commodities, underlying fundamentals and exposure to China.  The pair has fallen well below what might be justified by interest rate spreads.  However, […]

Spreads, Basis, and the USD and AUD

Posted on April 5th, 2018

What does the widening in USD and AUD LIBOR/OIS spreads and higher cross-currency swap basis mean for their exchange rates?  Some have argued that the implied tightening in financial conditions in their home countries may delay central bank rate hikes and undermine their exchange rates.  But this seems to ignore the fact that the spread […]

What next for US inflation?

Posted on April 3rd, 2018

In the next week or so, key US inflation data are released; wages data on Friday (6 Apr), PPI on the following Tuesday (10 Apr), and CPI on the following Wednesday (11 Apr).   FOMC minutes are also released on 11 April.  These data have sent mixed messages so far this year and contributed to the […]

Does anything in FX make sense anymore?

Posted on March 29th, 2018

Just when you think you have a bead on the likely direction in FX markets, you would be advised to sit, wait and consider taking the opposite view.  There have been a number of swings in the last month that have reversed and put the market back into the preceding range.  Issues the market is […]

FOMC Quick Take -upgrade to forecasts, but sets a suck it and see tone

Posted on March 22nd, 2018

FOMC raised GDP forecasts for 2018 from 2.5 to 2.7; for 2019 from 2.1% to 2.4%.  However, it left the 2020 GDP forecast at 2.0%, and the long run potential rate at 1.8%. It lowered unemployment rate forecasts across the profile from 2018 to 2020. From 3.9 t0 3.8% in 2018, from 3.9 to 3.6% […]

USD Shrugging-Off Political Risk, AUD Headwinds and EUR Cracks

Posted on March 21st, 2018

The USD has managed to shake-off increased political risk, although this remains a threat.  The prospect of a more upbeat FOMC may be supporting the USD. The market is looking for some upward revision to the dot-plot.  Eurozone confidence and inflation expectations have eased.  EUR yield spreads deteriorate to new lows.  AUD may have been […]

US Political Risk Threatening the USD and More

Posted on March 15th, 2018

Political risk in the US is elevated and likely to rise further as the market contemplates the possibility of Democrats taking control of one or both houses of Congress in the mid-term elections.  The close outcome of the special election in Pennsylvania on Tuesday points to Democratic momentum.  US political risk over the last year […]

Cracks widening in EUR’s foundations

Posted on March 13th, 2018

The EUR has struggled since the ECB meeting last week, despite a surprise removal of an easing bias.  It has failed to benefit much from a fall in the USD against most currencies in a risk-on move following the US labor data.  Eurozone economic momentum has eased in recent surveys, and this is reflected in […]

Draghi takeouts – EUR weaker despite the removal of easing bias

Posted on March 9th, 2018

The ECB removed a key element of its easing bias.  That was a statement that they were prepared to expand its asset purchase plan if the outlook deteriorated. Specifically, the removed sentence was: “If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path […]