The United States Dollar’s bull run is continuing in another big way this morning, and the Bloomberg Dollar Spot Index is set during early trading to notch its third straight session of gains and its seventh in the last eight.
Overview
US Treasury yields have continued to grind higher this morning even amidst a dearth of domestic data, with the 10-year note rising as much as 10 basis points in trading yesterday and slipping a touch further this morning. This comes as bets on Fed easing through the next few months have been tamped down pretty substantially. Markets now believe there is a decent chance the Federal Reserve only cuts once more this year, though the base case does remain that 50 basis points of easing will come down the pipeline in the remainder of this quarter.
Rate-sensitive pairs like USDJPY have borne the brunt of the damage in this run for the Dollar, and USDJPY is now at its weakest point since mid-July. That’s not to say, however, that the Dollar’s strength is reserve to these currency pairs; USD is moving up across the board as election risk premia continue to drive markets. Currencies with stronger ties to China are also facing down substantial losses over the last few sessions as investors attempt to hedge off risk and increase their Dollar stockpiles in the face of potential tariffs from an incoming Trump administration. The Dollar run could potentially continue in a new Harris administration as well, though likely not to the same extent. Both candidates have proposed fiscal policies heavy on spending and rather light on new revenue for the government, raising the risk on either side of an increased deficit while economic growth stays strong or even increases. A Trump presidency, however, does have the addition of more hostile trade policy which gives USD a bit more upside than that of his Democratic party counterpart.
Though the global data calendar is fairly light in the back half of the week, the Bank of Canada does release its latest interest rate decision this morning and is expected to cut by 50 basis points. Next week is when the real fireworks begin – we’ll see the Bank of Japan on October 31, US non-farm payrolls on November 1, the US election on November 5, and the next Fed decision the day after on November 6. Volatility is likely to remain high with so many risk events still on the table
What to Watch This Week…
- Bank of Canada Rate Decision, Wednesday
- S&P Prelim October PMI, Thursday 9:45AM
- US Durable Goods Orders, Friday 10AM
- WEBINAR: Navigation Election Uncertainty – Oct 23 @ 2pm EST
- Monex USA Online is always open
AUD ⇓
The Australian and New Zealand Dollars are facing down heavy losses against USD this morning, continuing their weakening trend of the last couple weeks. Australian bonds in particular extended their recent losses and the yield on the Aussie benchmark reached its highest point in nearly five months overnight. Though the economic fundamentals of the Antipodean nations do remain positive, their close ties to China when coupled with the upcoming US elections could keep the two pairs depressed for the time being. The Reserve Bank of Australia, however, is not expected to cut its benchmark interest rate until February of 2025.
JPY ⇓
Japanese Yen, as mentioned above, is the biggest loser on the G10 board this morning, sliding more than 1.2% since yesterday’s close as US yields continue to grind higher. Not to be outdone by the US, Japan also has its own general election over the weekend, and there is a solid chance that the ruling LDP may lose its outright majority when forming the next government. New Prime Minister Ishiba, while initially voicing his support for monetary policy normalization, has walked back that sentiment in recent weeks and urged caution from policymakers after the BoJ’s surprise jumbo hike in August sparked a short global panic.
