Doves in the Hawks Nest

Doves in the Hawks Nest

The Fed Rate Hike balloon has successfully been floated, and the market has continued to reprice the March rate hike probability fuelled by the dove of doves, Lael Brainard, who came out ‘Hawks-a-blazing’ at exactly the appropriate time. One of the conventional ways of trying to anecdotally determine the proclivity for FOMC members to vote on monetary policy decisions is known as the dove-hawk scale, with Brainard flying the dove’s coup, she has tipped the scales in overwhelming favour of a rate hike as the market now views   March as a fait accompli.

In the absence of any policy clarity from the US administration, the FOMC will continue to be the dominant dollar driver. The market is left pondering if the hawkish lean from the voting dove members is a signal that the Fed will accelerate the pace of tightening after March, which could add to further dollar strength over the near term.

Australian Dollar

Against another wave of broader USD buying, the commodity currencies have finally responded. The AUD was handicapped by yesterday’s downside miss in domestic trade balance data which likely fuelled downside momentum, as the .7560 region was tested overnight. Even though the global growth theme remains intact, it ‘s hard to stand in front of a USD freight train, especially when clear-cut interest rate divergence drives the move.

Investors were comfortable in the 76 zone, content to build lazy longs. Now that positioning is a bit cleaner after a run of stop losses below .7600, we are monitoring this current area, but demand so far has been fleeting which suggests we may push lower in the near term before demand re-emerges.

Oil prices continued to be weighed down due to concern that record US crude inventories will more than offset benefits from OPEC production cuts. WTI dropped from $53.42/barrel to $52.55/b.


USDJPY is dominating speculative flows in G10. The pair ripped higher, as dealers flipped their USDJPY  short term view on a dime when the Fed rate hike rhetoric gathered steam. USDJPY remains well supported above 114, as buying interest continues to be very steady, and the top side is clearly the path of least resistance. The 114.82 level than a clear break of 115 is needed to confirm the uptrend remains intact.

EM Asia

EM currencies have been suffering from the Fed repricing. Regionally there was heavy buying after USDJPY ripped higher on the Hawkish Fed rhetoric. Before that,  positioning was rather neutral in EM Asia as there was no clear-cut consensus up until the Fed floated the Rate hike balloon. Dealers are now jockeying for some top side dollar hedges, but EM Asia is far from down for the count. The global growth story line remains intact as is the reflationary trade.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes