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USD Index Moderates Lower Amid Yields Pullback, AUD Outperforms

FOREX
  • Despite an early test of Monday's highs, the USD index has reversed and now sits 0.25% in the red on Tuesday. The moderate correction looks to be driven by US yields rolling off their highs on a combination of Treasury block buys and risk aversion stemming from the NYCB equity sell-off.
  • Corresponding strength across the rest of G10 FX has been broad based, with moderate outperformance seen for the Australian dollar and relative weakness notable for the Euro.
  • Initially, the Euro extended its slippage off overnight highs, with EUR/USD's new daily low well in closely matching the Monday pullback and cycle low of 1.0724. Despite the subsequent greenback weakness, EURUSD has only managed to recover to 1.0750, with the day’s range contained to a very narrow 39 pips. Clearance below 1.0923 opens levels last seen in November last year.
  • The AUD was also boosted by the RBA not ruling out further tightening, although the subsequent central bank press conference was fairly balanced. AUDUSD has risen back above 0.6500 following yesterday’s breach of the pivotal chart point.
  • 148.80 still appears to be capping the topside for USDJPY, with price action unable to build momentum through the prior January highs on Monday. Since then, the sensitivity to core rates has benefitted the Japanese Yen with USDJPY sliding all the way back to below the 148 handle in late trade.
  • Similarly, lower US yields have boosted FX sentiment in emerging markets with the likes of ZAR and CLP outperforming. USDZAR is down 1.15% as we approach the APAC crossover and has now erased the entirety of yesterday’s move higher. A recovery in gold (which has bounced over 1% off Monday’s low) is likely accounting for rand outperformance in the EMEA region.
  • New Zealand Employment data is first up on Wednesday, before German industrial production and Swiss currency reserves. US and Canadian trade balance data also crosses, as well as further Fed Speak, with expected comments from Fed’s Kugler, Collins, Barkin and Bowman all due.
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