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USD Index Pares Gains Following Fed Minutes, Antipodean Weakness Prevails

FOREX
  • Mixed session for currencies across the G10 space on Wednesday with the dollar gaining ground against most other majors, however, notably underperforming against the Euro.
  • Prior to the release of the FOMC minutes, AUD and NZD had significantly extended their overnight moves to the downside amid higher US yields and a decent pullback for major equity indices. The higher yields had also worked against the Japanese yen with USDJPY trading above pre-US CPI levels to within close proximity of resistance at 135.58. Overall, this propped up the dollar index, which was trading with 0.3% gains heading into the minutes.
  • The minutes came as a dovish cue rather than being massaged in a hawkish direction, led by headlines that whilst some officials still see the Fed Funds rate below neutral, officials saw a slower pace of rate hikes at some point with many officials seeing risk that the Fed could tighten more than necessary. As such, the greenback saw a kneejerk reaction lower, and the USD Index now trades at closed to unchanged levels approaching the APAC crossover.
  • An unchanged DXY fails to paint the full picture though as AUD (-1.10%) and NZD (-0.90%) remain notably lower following the earlier RBNZ meeting and Aussie wage price index data. Similarly the Japanese Yen holds onto 0.6% losses for Wednesday.
  • While the Euro had been relatively outperforming all day with a notable recovery for the likes of EURAUD, EURNZD and EURJPY, the late USD selloff propelled EURUSD (+0.20%) to briefly trade at fresh highs above the 1.02 mark. Although showing relative strength, the pair still remains comfortably below the week’s opening levels with the ongoing energy crisis capping any bullish momentum up to this point.
  • Aussie employment data highlights the docket overnight before the Norges bank decision at 0900BST where the most recent July CPI print tilts the balance of risks to another 50bps rate rise.
  • Philly Fed Manufacturing, jobless claims and existing home sales are the US data points of note with potential comments from Fed’s George and Kashkari to watch out for.

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