Volatility in Hiding or Disappeared

Volatility in Hiding or Disappeared?


Fed repricing continues to dominate markets with US Treasury yields nudging higher.But FX volatility has gone into hiding while  FX  traders remain somewhat dormant within extremely narrow trading ranges. Higher US Treasury yields suggest a firmer dollar but verbal intervention by Commerce Secretary Ross on Tuesday, saying that it’s “not that the US is too strong” but that “other currencies are weak”  likely kept the dollar bulls temporarily at bay. But the overall storyline is little more than another  day of consolidating for global FX markets,


US equities backpedalled as investors tapped the breaks as all asset classes are looking to non-farm payrolls on Friday to seal the deal for a March rate hike. IN the meantime it might be best to cosy up with a good book


Australian Dollar


The RBA  statement was primarily unchanged, but there has been lots of banter on the removal of ‘having eased monetary policy in 2016’ in the forward guidance which should offer the markets some repose to rule out any easing and perhaps start to pricing in rate hike expectations.After surging to a high of .7630 post-RBA, the Aussie has retreated on a combination of Higher US Treasury yields and lower commodity prices. Predictably the commodity sag is spilling over into local equity and EM markets  While the street continues to run long AUD, there was likely some opportunistic profit taking spilling into the space ahead of Friday US  Jobs data , which weighed negatively on local sentiment. But overall there appear to be little fuss or concern in Forex Land with volatility getting squeezed and participation rates running  thin


New Zealand Dollar


The significant drop in dairy product prices at the overnight GDT auction has weighed on the New Zealand dollar.While the prospects of higher US interest rates has significantly weighted down the Kiwi, the slide in dairy prices did little more than to encourage dealers to double down on the short NZD bets. The technical picture looks dire with the NZDUSD retreating to mid-January levels.


Japanese Yen


Dollar-Yen made little progress overnight despite UST 10 year yields topping 2.50 % perceived to be the line in the sand for US dollar traders. But with the overhang Secretary Ross verbal shots that “other currencies are weak”, very dull trading ranges and a severe lack of participation, one  can only conclude that the market remains in wait and see mode ahead of Fridays Non-Farm Payrolls




Prospects of the US March rate hike continue to weigh on Yuan sentiment as USDCNH movements continue to track the broader USD sentiment.


Monthly FX reserves for China came in better than expected above the supposed psychological 3 Bln barrier.The first rise in 8 months and will be viewed as a short-term reprieve from the economic fidgets that have been caused by capital outflows. However, with US interest rates set to rise, we should expect the Yuan to weaken, and perhaps the capital outflow feedback loop comes back in play


“Citi announced the inclusion eligibility of Chinese onshore bonds to its emerging markets and regional government bond indices. If China continues to meet eligibility criteria for the next three consecutive months, Index inclusion will likely begin in February 2018 in a staggered manner over a three-month period.”( cut velocity)


China has a burgeoning government bond market, and its inclusion into  CITI global bond indices could be a source of much welcome capital inflow to counter the economic sting of the recent waves of capital outflow.

I think this is a very positive which will be embraced by foreign investment funds even more so after news last week that the onshore FX derivative markets in China are now open to foreign institutional investors.




WTI straddled  $53 a barrel again as oil traders jockey for positions while the usual theme plays out. Will Opec supply cuts or increased US supply win out in the long run?

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