See the latest Australian dollar analysis here:
DXY took a hammering last night as US yields fell back from the recent charge higher. We saw all of the usual resulted with EM, commodities and Australian dollar up strongly. I see this as a counter-trend rally. To the charts! DXY vs EUR:
The Australian dollar lifted away from the neckline of its perilous head-and-shoulders top but fell versus other EMs:
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Gold suddenly has a potential double-bottom and oil is still at risk:
Base metals were strong:
Big miners too though Aussie majors the least of it:
EM stocks held gains:
Junk is fine in the US, soft in EM:
US yields fell away. The long end is looking distinctly toppy:
Nasdaq has also pushed out of its head-and-shoulders pattern as wider markets power on:
But note that the tech rally is mostly at the quality end. Profitless tech still looks caught in a strong downtrend:
Westpac has the wrap:
The US JOLTS job openings report for February was strong, at 7367 (vs 6900 expected, 7099 prior) – the highest since January 2019. The quit rate was unchanged at 2.3%. The IBD/TIPP economic optimism survey index increased by 1 point to 56.4 – the highest reading since February 2020, and further evidence of the strength of the economic recovery.
Australia: The March AiG PCI has remained well above 50 on the housing market surge.
NZ: March ANZ commodity prices will by supported by the dairy price spike.
China: March foreign reserves have moderated recently on softer gold prices (market f/c: 3178.00bn).
US: The February trade balance is set to reveal that the deficit has widened further on the strength of domestic demand (market f/c: 70.5bn). February consumer credit is expected to rise on low rates and rising optimism (market f/c: 2.8bn). The FOMC meeting minutes will be published, with the focus on the breadth of opinions across the Committee. Finally, the FOMC’s Evans and Kaplan will speak.
I will put this move down to a counter-trend move with oil coming off delivering relief to the bond sell-off. Wall Street is now on board with a strong DXY. The latest being Citi:
USD weakness seen in NY has broadly held in Asia, with most of the risky FX complex notching gains despite the spate of recent strong data out of the US. Equities too have fared well with the S&P notching new all-time highs at 4077.91 overnight. As for the latest:
–USD ISM services on Monday came in above expectations at 63.7 (59e,55.3p), following a strong ISM manufacturing print last week. The index is now at an all-time high since the series began in 1997. Under the hood, components were also very strong, with business activity up to 69.4 (55.5p), new orders up to 67.2 (51.9p), and employment up to 57.2 (52.7p).
–This comes after a very strong NFP print on Friday where Citi Economics notes the US economy added 916K jobs in March, above consensus for 660K and Citi at 600K. The previous month was also revised up to 468K from 379K. Government hiring was a strong 136K as state and local education jobs return, leaving private payrolls at 780K, closer to expectations. Strength was particularly evident in leisure and hospitality (+280K) where restaurant, hotel and recreation jobs are rapidly returning. Ahead our economists maintain that the Fed remains on-track to taper asset purchases toward the end of 2021.·
Citi FX Strategy’s Calvin Tse continues to suggest that the combination of quick vaccine rollout and strong fiscal support are underpinning a robust US recovery. With that in mind, this also means that for now, the US will remain a “safe place to hide” despite recent USD weakness; we thus continue to see further USD outperformance in the near term, in particular against the G10 funders, and mores specifically, against EUR and CHF.
Indeed, the market has largely corrected the immense DXY long:
That mitigates against any violent move higher.
However, I remain of the view that US growth, inflation and yields exceptionalism is intact for another round of bond selling so I still see this as a corrective move in a new DXY bull market.
I will be taking the opportunity of a corrective move higher in the Australian dollar to move more assets offshore.