The US Dollar faced
selling pressure in overnight trade as US bonds advanced, pushing rates lower
and undermining yield support for the benchmark currency. Fixed income demand
appeared to stem from haven demand, with rising bond prices mirroring a drop in S&P 500 futures.
Tellingly, the anti-risk Japanese Yenoutperformed among the G10 FX majors.
The British Pound corrected
higher having slumped following dovish comments from the BOE’s Ian McCafferty yesterday.
The New Zealand Dollar continued
to rise in what looks to be an extended pre-positioning for the upcoming RBNZ monetary
policy announcement.
A 25bps rate cut is broadly expected, meaning surprise risk is skewed to the
upside for the currency if forward guidance is less dovish than what is already
priced in. With that in mind, gains may reflect protective short-covering.
A scheduled speech from RBA Governor Glenn Stevens –
his final outing at the helm of the central bank before stepping down next
month – did not generate a dramatic response from the Australian Dollar. Stevens reiterated familiar sentiments,
cautioning about over-reliance on monetary policy to deliver growth and urging
fiscal authorities to do their part. He also voiced support for
inflation-targeting as a policy regime versus more rigid alternatives like that gold standard
or an exchange-rate peg.
Looking ahead, another quiet day on the European and US economic
data fronts is likely offers few stumbling blocks for established momentum. As
noted yesterday however, the lull in high-profile news flow may make markets
more sensitive than usual to unexpected headline risk. Otherwise, the
aforementioned RBNZ rate decision marks the next key inflection point.
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