Several factors are contributing to the recent USD gains.
In the wake of the Brussels bombing, the market has turned mildly risk-averse as more countries move to a heightened state of terror alert; all of which is weighing on investor sentiment.
Over the past few days, a quorum of Federal Reserve officials has come out backing a recommencement of the interest rate normalization policy.
While it’s hard to believe, there is a hint of speculation that the April meeting of the Fed is now live. St. Louis’ Fed President Bullard (a voting member) stated that he has issues with Forward Guidance through the Dot Plot and feels the FOMC should react to data meeting by meeting. What the market is particularly focused on is Bullard’s comment that “If you get another strong jobs report, it looks like the labor markets are improving; you could probably make a case for moving in April.”
Whether the Fed Bullard’s comments have any staying power when trade resumes after the long weekend, or merely writing off as all talk and not substance, but we will have to wait to see it play out next week. In the meantime, a close eye will be kept on the US economic data due.
Additionally, profit taking and general position squaring ahead of the long weekend is likely helping the USD regain composure.
Aussie giving back gains
Also affected by the triggers, in early trade, the AUD has broken down and is now testing the 0.7500 support level. The state of global oil reserves is also affecting the AUD. Overnight, the U.S. Energy Information Administration (EIA) also said crude stockpiles rose 9.4 million barrels last week, the expansion in oil inventories saw WTI fall below the $40.00 per barrel level and weighed negatively on the Commodity Bloc of currencies. While not entirely unexpected after the earlier API build, it was further confirmation that supplies are still substantial.
Predictably, on the ASX AU200 OANDA CFD, the Index has fallen on the back on the back of falling commodity prices.
Innes expects stop losses below .7475 if triggered could accelerate the AUD capitulation.
There is increasing speculation amongst traders as to what was behind Monday’s IMF request for the PBOC to disclose their holding of forwards and futures. It is likely that the IMF wants to gain a better understanding of what mechanisms and outright volumes the PBOC has been using to support the value of the Yuan in forward and derivative markets.
The chatter circulating is that the PBOC may have reduced intervention in off-balance sheet markets this week, which could be having a knock-on effect of weakening the Yuan.
In follow up to the request, the IMF’s Deputy Managing Director Zhu has received the Chinese data that the IMF requested and that the fund will not be seeking more FOREX info. Likely a sign that the IMF is not too overly concerned about the levels of derivate interventions and will pacify market concerns.
The USDCNH markets continue to trade lightly on Thursday although USDCNH was better bid overnight on the back of broader USD strength.
The PBOC has set its midpoint slightly higher than expectations at 6.5150 vs. 6.4936 prior. USDCNH has jumped 30 pips higher on the fix.
The MYR opened at 4.0250–300, but the sentiment remains positive MYR, despite the overnight capitulation on oil prices.
The UDSGD continues to firm on the back of yesterday’s tepid CPI data release. The CPI fell .8% versus .6 %. In February, a drop falling oil prices along with a decline in asset prices are the main contributors to the weaker CPI index. When coupled with the prospects of a lower than expect GDP for 2016, it gives rise to the notion the MAS may ease monetary policy as early as April meeting. ThisA shift in monetary policy could weigh negatively on the Singapore dollar.
The Singapore Budget announced later today should hold few surprises today. Look for a controlled balancing act between taxation and prudent fiscal expenditures.