The US dollar sold off as investors in Asia trimmed bullish positions after the Fed’s December minutes showed officials were grappling with uncertainties about Trump’s policies and the impact on growth. Most Asian indices tracked US stocks’ gains last night. Gold extended gains to a one-month high.
- US stocks rose, Treasuries erased losses and the US dollar fell after minutes from the Fed’s December meeting indicated officials considered gradual rate hikes as they debated on the economic impact from a rising dollar and Trump’s policies.
- The minutes stated that almost all participants “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years”.
- Members of the committee also are preparing for a labor market that could stage a “sizable undershooting” of the jobless level that keeps prices stable in the longer run. In other words, that could drive inflation pressures up which would require the Fed to raise its funds rate “more quickly than currently expected”.
- Most on the committee reiterated that a “gradual” pace of rate hikes over the coming years would likely remain appropriate.
- According the Bloomberg pricing data, Feds funds futures currently indicate a 73% chance that the next rate hike will be in June.
- Despite the hawkish FOMC minutes, the US dollar sold off across the board amid profit-taking. The Bloomberg Dollar Spot Index ended 0.4% lower in New York, and declined a further 0.5% in Asian trading earlier today. The Dollar Index gapped lower by as much as 0.7% this morning, nearing 3-week lows.
- The benchmark US 10yr Treasury yield remained little changed at 2.44%, not before erasing a 4bps gain earlier in the session.
- The S&P 500 Index rose 0.6% to close near record highs, led by gains in the materials, consumer discretionary and real estate sectors.
- The Eurozone composite PMI in December rose to 53.7, exceeding the consensus estimate of 53.1, and registering its fastest pace of increase since May 2011.
- Headline CPI rose 0.4% month-on-month and 0.5% year-on-year, exceeding the median estimates of 0.2% and 0.3% respectively.
- UK construction PMI last month surprised positively, gaining from 52.8 in November to 54.2; analysts had expected a drop to 52.5.
- The Caixin Media composite PMI gained 53.5 last month, from 52.9; services PMI rose as well, from 53.1 to 53.4.
- China’s efforts to choke capital outflows are beginning to pay off, with the offshore yuan surging the most in a year as traders scrambled for a currency that’s becoming increasingly scarce outside the nation’s borders. The yuan had jumped 1.3% late Wednesday and overnight deposit rates surged to as high as 30% in Hong Kong.
- A rebounding currency would alleviate pressure on Chinese authorities battling to curtail capital outflows after an annual $50,000 quota for citizens to buy foreign exchange reset on 1 Jan 2017.
- The Nikkei Japan services PMI rose from 51.8 in November to 52.3 in December, while the composite PMI gained to 52.8 from 52.0 over the same period.
- The AiG performance of services index rose to 57.7 in December, from 51.1 in the prior month, registering its highest reading since May 2007 and a third consecutive month of expansion.
- Bitcoin hit an all-time yesterday, following continued adoption of capital curbs in China and other parts of the world like India and Venezuela. The digital currency reached $1,140.64, surpassing the previous high made in November 2013.
- Spot gold climbed to its highest in almost a month, adding 0.8% to $1,174/Oz earlier today, amid a broad-based US dollar sell-off.
- The metal could meet strong resistance around $1,180/Oz, while $1,150/Oz and $1,125/Oz should provide some forms of support.
- Silver gained together with gold, advancing 1.2% to $16.6258/Oz.
- Crude oil futures expiring in February rebounded 1.8% to close at $53.26/bbl in New York, but retreated in Asia to fall 0.4% back towards to the $53/bbl after it was reported that Libya is re-opening its last major oil-export terminal.
- Spot 1.4389
- USDSGD declined 0.6% to 1.4356, amid a weaker US dollar following the release of last night’s FOMC minutes, falling to its lowest level in 3 weeks.
- The Singapore dollar has weakened 2.4% against the greenback in 2016, marking the fourth consecutive year of losses against the USD, its longest run based on Bloomberg data going back to 1981.
- The next important support level lies at 1.4150.
- Spot 0.7287
- UADUSD added 0.6% to 0.7303, clocking a fresh 2-1/2 week high, following broad USD selling in Asia this morning.
- AUDUSD fell 1.5% in 2016, the currency pair’s fourth consecutive yearly drop.
- Spot 1.3290
- A clean break below the 1.3400 support during its previous session has resulted in USDCAD declining further by 0.6% to 1.3275 today.
- Beyond the looming 100-day moving average of 1.3258, the support of 1.3100 will be key as it coincides with the 200-day moving average as well.
- USDCAD fell 3.2% in 2016, snapping three straight years of gains since 2013.
- Spot 6.8923
- The PBOC strengthened its fixing earlier today, by 0.31% from 6.9526 to 6.9307 per US dollar.
- Following a 0.9% decline in its previous session, USDCNH resumed its slide today, falling a further 0.6% to 6.8659 earlier today.
- The psychological resistance of 7.0000 remains the key level to watch, while the 1-month low of 6.8558 is expected to provide some support.
- The offshore yuan overnight deposit rate humped to a one-year high of 35% today.
- Spot 116.30
- USDJPY looks set to decline for a second day, falling 1.1% to 116.28 in Asia this morning.
- The 116.00 support level has proven to be resilient over the past 3 weeks, and looks set to be tested again soon.
- USDJPY ended 2016 2.9% lower, snapping a 3-year positive streak. The currency pair fell as much as 17.8% in 2016, but recovered back most of its declines amid a strengthening US dollar in the latter half of the year.
- Spot 1.2332
- GBPUSD rebounded off its key 1.2200 level in its previous session, gaining 0.8% to 1.2353 today.
- The currency pair’s gain has so far been muted, considering the broad-based USD selling taking place today. The underperformance can be attributed to fresh concerns of a hard Brexit looming, following the recent resignation of the UK ambassador to the EU.
- The next support below comes in at 1.2090.
- GBPUSD declined 16.7% last year, the third straight year of declines and the currency pair’s largest annual drop since 2008.