The US dollar is bid against the major currencies as the combination the increased expectation of a Fed
rate hike and the President's commitment to fiscal stimulus buoys
sentiment. The dollar-bloc, where speculators in the futures market,
have grown a net long position, are leading the move.
The Australian dollar is the best performer this year, but is the worst
today, giving back 0.75%. It has repeatedly tested the $0.77000 area,
and today's disappointing trade figures and ideas that iron ore prices may have
peaked (after a 70% rally over the past eight months) has helped spur the
pullback toward the lower end of the range (~$0.7600). The January trade
balance was a third of the A$3.8 bln expected.
The dollar is extended its gains against the yen for the fourth
consecutive session. It is the longest advancing streak since around
the US election last November. The greenback is now at two-week highs to approach the upper end of its
range since the middle of January seen in the JPY115.00-JPY115.60 area.
The drivers seem clear. Rising US
rates (and spread over Japanese rates) and rising equities. The US
10-year yield is also rising for its fourth consecutive
session.
The S&P 500 has risen in four of the last five sessions.
Its 7% gain, year-to-date coming into today's session, is easily the most
within the G7. Japan's Topix has a three-day streak in
tow. A note of caution is in order. The Topix gapped higher
to its best level since late 2015, but the initial upside momentum could not be maintained and the close was on the
lows. Wednesday's high, about 0.6% lower than the close (~1554) will be
important in tomorrow's price action.
European bourses are struggling. Minor losses are being recorded. The Dow Jones Stoxx 600
is off marginally, led by real estate, consumer discretionary and stable.
Utilities are the strongest (+0.8%) followed by materials (+0.4%). The
economic news from the eurozone has been in line with expectations. The
initial estimate for February CPI was 2.0%, up from 1.8% in January.
However, the core rate was steady at 0.9%, around where it has been for
months despite the rise in the headline. The January unemployment rate
was unchanged at 9.6%. In January 2016, it stood at 10.4%.
The euro is consolidating in the lower half of yesterday's range.
Participants seem reluctant to sell it near $1.05. It has not closed
below there since January 4. On the upside, there may be scope to
$1.0560-$1.0580. With the Fed's Brainard comments late yesterday, also endorsing a rate hike soon, the market,
according to Bloomberg's calculations has it nearly fully discounted
(86%). Last Thursday, the calculation showed only a 38% probability was discounted. Fischer and Yellen speak tomorrow, and some participants may be
reluctant to lighten up on dollar exposure ahead of them.
Sterling is extending its losses today. The uptick in the
construction PMI (52.5 from 52.2) was prompted
ignored. Sterling had found support, especially on a closing basis near
$1.24. It finally closed below it on the last day of February and had not looked back. In fact, it now
struggles to resurface above $1.23. The proximate cause of the latest
losses was news that the House of Lords added an amendment to the bill that
authorizes Prime Minister May to trigger Article 50.
The details of the amendment, protecting the rights of EU citizens in the
UK, are no so controversial. Cabinet Ministers like Johnson and
Gove have expressed a similar
sentiment. The issue is two-fold. The defying of the Prime Minister
and the delay as the bill goes back to the House of Commons (called
ping-pong). This means at least
another week delay it seems, making the formal triggering of Article 50 closer
to the Ides of March. Separately, note that Northern Ireland votes for a new
assembly today.
The Dollar Index is testing the
102.00 area. It has not traded above
there since January 11. A successful
move above there would undermine some ideas that a top (head and shoulders) was
being carved. That area also corresponds with a 61.8%
retracement objective of the down move
since the January 3 high near
103.80.
After a flurry of economic reports in
recent days, the US calendar is light with weekly jobless claims the only
release. Next week’s national report
overshadows today’s report. The
four-week average stands at new cyclical lows of 241k. The Fed’s Mester speaks, but her views are
known. Canada reports December and Q4 16
GDP. A 0.3% expansion in December would
translate into 2.0% Q4 growth, down from 3.5% in Q3. The Bank of Canada Poloz saw a half empty glass
in his remarks yesterday. The US dollar blew threw CAD1.32 resistance on Tuesday and is
pushing near CAD1.34 now.
Disclaimer
Dollar Remains Bid
Reviewed by Marc Chandler
on
March 02, 2017
Rating: