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USD Index Declines 0.5%, Trades To One-Month Lows

FOREX
  • Lower US yields and higher equity benchmarks have weighed on the greenback on Wednesday, with G10 currency ranges showing some signs of life ahead of further event risk scheduled later this week. The USD Index's leg lower puts the greenback at the weakest since early February and further slippage through 102.918 would entirely erase the upleg posted on the back of the bumper US payrolls release.
  • The most notable beneficiaries of the weaker dollar have been AUD and NZD, with the former surging 1.15% and extending the bounce off yesterday's pullback low of 0.6478, and is rebuffing the bearish outlook that should hold below key S/T resistance at 0.6595, the Feb 22 high.
  • Much of the AUD strength stems from the China NPC growth targets suggesting scope for both fiscal and monetary easing in China - disappointment with which could prompt an AUD reversal and re-orient focus on the downside. Sizeable AUD options are set to roll-off at Thursday's NY cut between $0.6520-25, with A$1.1bln notional seen expiring.
  • Similarly, the Canadian dollar has risen 0.7%, after the Bank of Canada stuck to its perceived continued threat of persistent underlying inflation. USDCAD fell around 30 pips to ~1.354 in the direct aftermath, and gradually extended to a 1.3501 session low, narrowing the gap with support at 1.3494 (50-day EMA).
  • Gains for both the Japanese Yen and the Euro have matched the size of adjustment in the broad USD index. EURUSD made above 1.0888 resistance to print the best levels since Feb02 and recapture the 1.0900 handle in the process with 1.0932 the next notable level.
  • Price action should keep EUR levels in focus headed into tomorrow's ECB decision - with Friday's NFP likely to add to FX volatility. Elsewhere, China trade data will cross overnight before German factory orders and Swiss currency reserves in early European hours.
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