Expectations of Fed rate hike ease on economic outlook; ECB & BoJ fail to talk down their currencies; USD weak across the board, NZD/USD over 67c

By Jason Wong

Continuing on from yesterday, the USD continues to retreat, with the Bloomberg DXY index on track for its biggest 2-day drop since 2009.  

Expectations are growing by the day that the US Fed will not hike again this year, given the weaker growth picture and tightening financial conditions.

Even strong words by ECB President and BoJ Governor have not been enough to talk down their currencies against the big dollar move. In a speech in Frankfurt, Draghi talked of further policy stimulus if needed. “If we do not ‘surrender’ to low inflation – and we certainly do not – in the steady state, it will return to levels consistent with our objective”, he said.

Kuroda repeated his comments that there is no limit to the BoJ’s easing options, pledging to cut the negative policy rate further if needed.

So the USD is weaker pretty much across the board, with the DXY down for the fourth day in a row at -0.7% following yesterday’s larger 1.6% drop. The broader Bloomberg DXY index is down 0.5%.

EUR/USD blasted up through the 1.12 mark to reach a high of 1.1239, before retreating, to be up 0.9% at 1.1200. USD/JPY is down 0.9% at 116.84. Thus, the Yen is now stronger compared to the level before the BoJ shocked the market last week with its negative rate policy. 

GBP is the only major currency down against the USD, sitting at 1.4590. This followed the BoE’s on-hold rate decision, publication of the inflation report and comments by BoE governor Carney.

The weaker USD over the last few days has helped drive some recovery in commodity prices, supporting the commodity and emerging market currencies. Oil prices have whipped around a bit overnight as investors speculate whether or not OPEC will implement production cuts, but base metal prices are stronger across the board.

The AUD is up 0.7% to 0.7221 while the NZD is up 1.0% to 0.6736. We’ve certainly seen a decent recovery in the NZD this week, with the increase approaching 4%.

The weaker USD, higher commodity price complex, strong employment data and the hawkish Wheeler speech have all been factors. The technical area of resistance is around the 0.69 mark, close to the highs seen in October and repeated in December.

There’s not a lot to say about equity markets. Europe was down slightly and the S&P500 is up a touch. For the latter, strong gains in materials and industrials, helped by the weaker USD, have been offset by falls in consumer-focused stocks.


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Daily exchange rates

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