AUD and NZD fall amid US Treasury sell-off, CAD holds firm
09:56, 18 January 2022
Risk sentiment deteriorated as US yields rose sharply overnight. The 10-year Treasury yield reached 1.85% – its highest level since January 2020 – and weighed on high-beta currencies, with the Australian dollar (AUD) and New Zealand dollar (NZD) suffering the most among majors.
The Canadian dollar (CAD) once again outperformed the G10 yesterday, as Brent crude rose more than 1.5% to above $88 per barrel, the highest since October 2014, boosted by worries about potential supply disruptions following a drone attack on the United Arab Emirates by the Yemen-based Houthi group.
The US Dollar is trading higher in European morning trade, aided by rising US Treasury yields. By 10:30 GMT, the DXY index was at 95.30 levels, up 0.15% on the day.
The pound is slightly weaker today, despite strong UK employment data released this morning, which reinforced expectations for a Bank of England rate rise in February. The euro fell marginally to $1.139, despite the fact that Germany’s ZEW confidence index for January significantly exceeded forecasts.
The Bank of Japan (BoJ) held rates steady in its first meeting of the year, as expected, and signalled its willingness to maintain an ultra-loose monetary policy for longer, despite slightly raising its inflation forecasts for 2022 from 0.9% to 1.1%. The Japanese yen (JPY) remained unchanged.
Elsewhere, emerging market currencies weakened across the board amid higher US yields, with the Turkish lira (TRY) slipping by 0.8%, the Russian ruble (RUB) 0.6% lower, the Mexican peso (MXN) declining by 0.4% and the South African rand (ZAR) dipping by 0.4%.
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Daily performance of major forex pairs – 18 January 2022
- EUR/USD edged slightly down to 1.1396 (-0.10% on the day)
- USD/JPY held steady at 114.62 (+0.02%)
- USD/CHF was flat at 0.9140 (+0.02%)
- GBP/USD edged slightly lower to 1.3622 (-0.17%)
- AUD/USD declined to 0.7194 (-0.22%)
- NZD/USD slipped to 0.6777 (-0.29%)
- USD/CAD was flat at 1.2514 (-0.04%)
Performance matrix of major currencies – 18 January 2022
At time of writing, the US Dollar Index (DXY) was at 95.30, up by 0.15% on the day.
Retail sales in the United States fell short of projections in December 2021 due to supply chain problems, rising prices and Covid-19 infections.
Consumer prices grew 7% year-on-year in December 2021, the highest pace since June 1982, as a result of a broad-based increases across the basket.
Meanwhile, the Federal Reserve’s communication has evolved dramatically in recent weeks, now signalling a readiness to boost rates as early as March 2022 and to begin a balance sheet run-off immediately after the first rate rise to curb price pressures.
US Treasury yields rose again yesterday, increased by about eight basis points, with the 10-year yield holding around 1.78 percent and the two-year yield lingering around 0.97 percent.
Fed futures indicate that investors have completely priced in the Federal Reserve raising rates in March, according to the latest CME Group FedWatch tool.
US dollar (DXY) technical levels
- 52-week high: 96.88
- 52-week low: 89.49
- 50-day moving average (one-day chart): 95.89
- 200-day moving average (one-day chart): 93.12
- 14-day Relative Strength Index (RSI) (one-day chart): 43
Chart of the day: US Treasury 10-year yields hit pre-Covid level
EUR/USD was 0.1% lower to 1.1396 by 10:30 GMT.
European Central Bank vice-president Luis de Guindos said recently that inflation is expected to drop as base effects fade, but he also identified energy costs as a worry. He said that inflation risks are skewed upward in the next 12 months but remain balanced over the longer term.
On the data front, the January German ZEW survey increased by 22.6 points from December 2021 to 51.7, significantly above market estimates (32), indicating that Omicron has not yet had a detrimental impact on German investor confidence.
EUR/USD technical levels
- 52-week high: 1.2266
- 52-week low: 1.1184
- 50-day moving average (one-day chart): 1.1328
- 200-day moving average (one-day chart): 1.1728
- 14-day Relative Strength Index (RSI) (one-day chart): 55
GBP/USD was last seen at 1.3622, slightly down (-0.15%) on the day, after weakening 0.2% yesterday. EUR/GBP was flat at 0.8362.
This morning’s strong jobs report reinforced expectations for the Bank of England’s February rate rise, bolstering the pound.
The Office for National Statistics (ONS) announced that there were 29.5 million workers in the UK in December 2021, up 184,000 from November 2021’s revised figure and up 409,000 from February 2020’s pre-coronavirus level.
Data indicated that the UK employment rate increased by 0.2 percentage points to 75.5 percent in the fourth quarter of 2021. In the three months to November 2021, the UK unemployment rate fell to 4.1 percent, the lowest level since June 2020 and below market predictions of 4.2 percent.
The number of job vacancies increased to a new record high of 1,247,000 in the period October–December 2021, up 462,000 from the pre-coronavirus January–March 2020 figure, with most sectors reporting record levels of vacancies. In September–November 2021, average total pay (including bonuses) increased by 4.2 percent, while regular compensation (excluding bonuses) increased by 3.8 percent, in-line with market forecasts.
Investors’ focus will now shift to the UK consumer price index (CPI) data for December 2021, which is due tomorrow.
Gilt yields rose further overnight, with the 10-year hitting 1.2% yield, reaching October 2021’s highs. The market is now fully discounting a Bank of England rate hike in February, according to the CME Group Bank of England Watch tool.
GBP/USD technical levels
- 52-week high: 1.4248
- 52-week low: 1.3165
- 50-day moving average (one-day chart): 1.3405
- 200-day moving average (one-day chart): 1.3735
- 14-day Relative Strength Index (RSI) (one-day chart): 62
Forex Performance Heatmap – 18 January 2022
Daily performance of EM currencies
Read more: Canadian dollar reigns as Brent hits 2018 highs
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