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Higher US Yields and FOMC Minutes Fail To Impact Greenback

FOREX
  • Despite the shift higher for US yields on Wednesday, the USD index has traded in a very narrow range. With treasuries extending lows following the latest 20-year auction tailing, the greenback traded moderately into the green ahead of the FOMC minutes, however, topside momentum failed to materialise.
  • Moves this afternoon have been most noticeable through USDJPY, which improved its intra-day recovery to around 50 pips, closing in on yesterday’s highs located at 150.43. A brief uptick on the FOMC minutes quickly retraced, with the pair hovering around 150.20 ahead of the APAC crossover. USDJPY bulls will focus on 1.5089, the Feb 13 high, before 151.43, the November 16 high.
  • Mixed performance across G10, with most ranges remaining contained. NZDUSD remains in positive territory and extends a noteworthy run of consecutive wins. Modest outperformance is likely thanks to strong demand at the latest long end NZGB syndication (which is usually dominated by offshore investors). NZDUSD saw support and rose closer to the 0.6200 mark, as well as tipping AUD/NZD toward the YTD lows of 1.0586.
  • For emerging market FX, it is worth highlighting that one-month implied volatility for USDMXN sank to near 8.5%, the lowest level since mid 2021. Furthermore, one-month implied volatility on Brazilian real options has dipped to 9.2%, the lowest since 2014, potentially highlighting the reduced levels of embedded risk premium which reports suggest should particularly pop up on foreigners’ radar.
  • Focus turns to Thursday’s release of European Flash PMIs, as well as final readings for Eurozone CPI. Canadian retail sales will also cross alongside US jobless claims. US Flash PMIs and existing home sales rounds off the docket.
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