After yet another banner reading from the US jobs market last Friday, the United States Dollar is starting the morning a bit on the front foot against most of the G10 today.
Overview
Though USD was unable to consolidate most of its payroll-related gains and closed Friday’s session fairly close to flat, added geopolitical risk around the world coupled with strong US data throughout all of last week has given the Dollar a boost toward the stronger end of most of its recent ranges. Gold prices also continue to hover near all-time highs, as many traditional safe havens like CHF and JPY languish behind the Buck, and investors seek to keep some diversity in their portfolios rather than simply take USD for a ride.
Tensions in the Middle East continue to dominate the global conversation amidst further signs that the Israel-Hamas war may spill over into a larger regional conflict after Israel and Iran traded proxy strikes last week and over the weekend. Though there is some potential for at least a temporary ceasefire between Israel and Hamas, according to senior Israeli officials, the scope of any potential peace agreement remains very much in question. International pressure on Israel has intensified over the last week after a missile strike killed seven aid workers. This is all coupled with the fact that traders continue to scale back bets on Fed cuts this year, giving USD a fairly clear advantage as both a safe haven and a good bet on a healthy economy.
Later this week, we’ll see more crucial inflation readings that will help further illuminate the Fed’s path this year. After voting member Neel Kashkari said last week he sees a chance that the Fed may not cut interest rates at all this year, questions are swirling around the Fed’s last dot plot and how applicable it may be through this period of unprecedented strength from the US economy.
What to Watch Today…
- US CPI, Wednesday 8:30 AM
- Bank of Canada Interest Rate Decision, Wednesday
- European Central Bank Rate Decision, Thursday
- US PPI, Thursday 8:30 AM
- UK GDP, Friday
- Monex USA Online is always open.
AUD ⇑
Australian and New Zealand Dollars are two of very few winners against the USD this morning, climbing roughly a quarter of a percent in Asian and European trading. Initially the Antipodean currencies fell with oil prices, but found some resurgent footing as iron ore futures rose and China used its daily fixing to once again defend the Yuan, also facing historic weakness similar to its peer in Japan. The Reserve Bank of Australia looks to be the closest in interest rate overnight swaps to the Fed out of the Group of 7, with just one interest rate cut ‘priced in’ this year, helping to keep AUD afloat.
JPY ⇓
Japanese Yen is sliding once again this morning and continues to flirt with levels that have prompted sharp verbal warnings from Japan’s currency officials over the last few months. Traders remain quite vigilant for any signals of possible intervention as the efficacy of such verbal warnings has decreased since the first few we saw in October, and JPY remains historically weak against USD. Investors appear to no longer want to take JPY as a safe haven asset, eliminating the boosts we’ve seen in the past to the currency in the face of increased geopolitical risk.
