The United States Dollar’s bullish run continued this morning, buoyed by both waning consumer sentiment domestically and abroad as well as prospects for high real dollar yields continuing through the foreseeable future.
Overview
Restrictive financial conditions around the world are continuing to weigh on bonds and equities, and forecasts moving forward see the Federal Reserve keeping interest rates higher for longer than those of its peers, boosting the Buck.
Though the prospect of a US government shutdown does loom large over quarter-end flows, realistically, any sort of shutdown – unless it goes on for a very extended period of time – is unlikely to have any large impact on current Dollar strength. Traders seem to believe this as well, especially on the news yesterday that a short-term funding compromise is in the brokerage process between Democratic and Republican leaders. As it appears many central banks have reached (or are close to) their peak interest rates of this tightening cycle, markets have shifted their focus to the longer-term real yield prospects of respective currencies. USD seems to have the best positioning as the Fed continues to push its ‘higher for longer’ narrative, and other central banks may have to cut interest rates sooner rather than later next year.
Across the world, Chinese property stocks fell to a twelve-year low early on Wednesday, even as broader Chinese equities clawed back into positive territory. Markets seem to have talked themselves out of trading on fear of contagion, but it’s clear this week’s events will continue to color risk assessment through the remainder of the year as global moods remain gloomy. If the US can show a higher GDP reading tomorrow, and the Eurozone puts up yet another distressingly high CPI print, we are likely to continue to see the Dollar’s strength grow.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
AUD ⇓
Primarily driven down by ongoing Chinese property sector woes, the Australian and New Zealand Dollars both declined to the tune of 0.4% against the USD entering this morning. Though AUD was provided with a boost earlier this month after inflation reaccelerated in Australia, AUD’s ongoing prospects seem rather dark. The Reserve Bank of Australia may have room to hike interest rates one final time, but as we’re seeing play out in several nations around the world, the central bank is likely to begin easing before the Fed, weighing on long-term pricing.
USD ⇑
Swiss Franc extended its losing streak for an 11th straight day against USD yesterday and continued into a 12th day this morning, its longest slide (day-over-day) against the Dollar since 1975. As we’ve seen driving most price action for USD, investors are turning to the probability of high longer-term yields for the Buck, especially as the Swiss National Bank chose to hold interest rates steady last week. SNB’s key interest rate remains substantially lower than that set by the Fed, depressing the currency as global equities sour and investors search for meaningful returns.
