FOREX: USD Can't Sustain Early Gains, As Yields Continue To Fall

The USD BBDXY index was firmer in the first part of Asia Pac Tuesday dealings, getting close to 1288.50. Carry over from Trump remarks late on Monday (progressing towards tariffs on Canada and Mexico) likely aided early USD demand, but the move has run out steam. We were last near 1286.5, just up from session lows. 

• US yields have continued to track lower in the Tsy space. We sit off a further 2-3bps, with the 10yr yield back to 4.375%. This is fresh lows back to mid Dec last year.
• The chart below shows the relative CITI economic activity surprise indices. The US (the orange line on the chart) is only above China at this stage, Japan (pink line), EU, the green line and the UK all sit higher than the US.
• Waning US yield momentum is helping curb upside USD from tariff threats. USD/JPY got to highs of 150.30 earlier, as onshore markets returned from yesterday's holiday. We sit back at 149.50 now, up around 0.15% in yen terms for the session. Levels wise, yesterday's low at 148.85 will be watched on the downside. Earlier data showed the services PPI rising in line with market estimates of 3.1% y/y.
• AUD and NZD haven't shifted much. AUD/USD was last near 0.6350, while NZD tracked around the 0.5735 region. Both currencies are up from earlier lows, but weakness in China and Hong Kong equities may be tempering the upside. Trump trade/investment risks remain in focus.
• USD/CAD got to 1.4279 earlier but is now back to 1.4245/50. EUR/USD has edged higher to 1.0470/75.
• Regional equities mostly track lower, while US futures sit marginally in positive territory for equities.
• Looking ahead, we have BoE and ECB speak. In the US, the Richmond Fed survey and house price data are releases among a busy data day. Fed speak also includes Barr and Barkin.  

Fig 1: Relative EASIs, US Data Outcomes Underwhelm In February