Safe haven assets such as gold and the Japanese yen declined, after the US dollar rallied overnight in wake of Janet Yellen’s comments that the US economy is strong enough to warrant higher interest rates. Asian equities were mixed, heading into midday.
- Fed Reserve Chair Janet Yellen said the US economy is “close to the central bank’s objectives of full employment and stable prices and she’s confident it will continue to improve. She also added that she and “most” of her colleagues were expecting last month to increase the benchmark lending rate “a few times a year” through the end of 2019.
- Yellen also said that stronger US growth has helped firm the dollar against other currencies, thus slowing US exports and she expects that drag to continue. She added that risks to financial stability were “moderate”, and the central bank is watching for new policies from the incoming administration of Trump and how they might change the Fed outlook.
- The dollar rallied while Treasuries plunged as investors absorbed Yellen’s confident characterization of the US economy and the outlook for further rate increases.
- The Bloomberg Spot Dollar Index, which tracks the US dollar against 10 major peers, erased Tuesday’s declines, ending 1.1% higher and added a further 0.2% in Asia this morning.
- The benchmark 10yr Treasury yield added 10bps to 2.43%, registering its biggest advance since Dec. 14.
- The S&P 500 Index rose 0.2%, while the Dow Jones Industrial Average slipped 0.1% to close at its lowest level this year. Overall, financial stocks led gainers.
- Headline CPI in December rose 0.3% month-on-month, quickening from a 0.2% gain in the month prior and matching the consensus estimate. On a year-to-year basis, CPI rose 2.2%, matching estimates as well.
- Core CPI, which strips out the volatile effects of food and energy prices, rose 0.2% from a month earlier, and 2.2% from year earlier, matching expectations for both readings.
- Industrial production last month rose 0.8% month-on-month, exceeding the median forecast of 0.6% and rebounding from a drop of 0.7% in November.
- The Bank of Canada kept its key interest unchanged at 0.5%, as expected.
- Governor Poloz maintained that a rate cut remains on the table should downside risks materialize and threaten the inflation target, and also highlighted risks of Donald Trump’s new protectionist measures which could pose a derailment to the Canadian economy.
- US President-elect Donald Trump’s pick for Commerce Secretary Wilbur Ross has signalled plans to renegotiate NAFTA, calling it a priority, triggering the Canadian dollar’s biggest slide post-Brexit.
- German Chancellor Angela Merkel has said that she is determined to hold the rest of the EU together as the UK sets out its plan to exit the bloc. Speaking to reporters alongside Italian PM Paolo Gentiloni in her first reaction since UK PM May’s speech, she said both leaders were “determined” that talks between the EU and the UK won’t start until Brexit is triggered.
- China’s holdings of US Treasuries declined in November for a sixth straight month, as the world’s second-largest economy uses its FX reserves to support the yuan.
- A monthly Treasury Department report showed China held $1.05 trillion in US government bonds, notes and bills, a drop of $66.4 billion from the prior month which was the steepest drop since December 2011.
- The PBOC has burned through a quarter of its reserves since 2014, according to data from the US Treasury.
- Employment in December rose 13,500, more than the expected 10,000 but lower than November’s downwardly-revised 37,100 gain. Full-time jobs rose by 9,300, while part-time employment swung to gains, rising 4,200.
- The employment rate ticked higher to 5.8%, more than the median forecast of 5.7%. Participation rate edged higher to 64.7%from 64.6% in the month prior.
- Spot gold extended its previous day’s decline, falling 1.2% to $1,197.70/Oz earlier today after hawkish comments from Fed Chair Yellen last night.
- The next level of resistance above is expected to be around $1,230/Oz. $1,180/Oz represents the support level below.
- Silver for immediate delivery briefly breached its key level of $17.20/Oz, before paring gains back below the $17/Oz handle, down 1.1% to $16.9362/Oz.
- Crude oil futures expiring in February declined 2.7% to $51.08/bbl in New York amid a surging US dollar and concerns of increasing US output, but rebounded back 0.9% in Asia this morning after industry data showed US crude stockpiles declined by 5 million barrels last week.
- Spot 1.4303
- USDSGD extended upon Wednesday’s recovery, advancing 0.6% to 1.4303 earlier.
- The currency pair bounced off its 1.4150 support level yesterday for the second time in 2 months, halting a decline which has seen the pair fall more than 2% since the start of the year.
- To the upside, some resistance is expected around the 1.4400 handle.
- Spot 0.7517
- AUDUSD sold off following a higher-than-expected unemployment rate last month, falling 0.8% to 0.7494 earlier.
- The key price to monitor continues to be 0.7500. Should the currency pair fail to fall back below it, it could signal a possible move to the next resistance at 0.7650 or even 0.7750.
- Spot 1.3261
- Comments from Stephen Poloz and Wilbur Ross overnight propelled USCAD 1.4% to 1.3273 and past its key 200-day moving average of 1.3106.
- Further Canadian dollar weakness seems to be on the cards; the next resistance levels above come in at 1.3300 and 1.3600.
- Spot 6.8347
- The PBOC weakened its yuan fixing to 6.8568, versus 6.8525 a day earlier.
- USDCNH rose 0.4% to 6.8448, helped on by an overnight rally in the USD.
- Spot 114.61
- USDJPY gained 1.3% to 114.89 as the currency pair looks set to retest its 115 resistance again soon following a resurging US dollar.
- Spot 1.2288
- GBPUSD pared some of its previous day’s gains, declining 0.5% to 1.2254 in wake of a stronger US dollar, and some technical resistance at the 1.2400 level.
- GBPUSD’s recent advance from a 3-month low has helped the currency pair break out of its post-Brexit downtrend, and a strong close above the 1.2400 handle should confirm it.