FOREX: US Dollar Needs Risk Aversion to Rise After Dovish FOMC

2012-01-26 06:57:00 Ilya Spivak, Head Strategist, APAC

Talking Points

US Dollar Consolidates in Quiet Asian Trade, Aussie and Loonie Outperform
New Zealand Dollar Lags Comm Bloc Currencies on Dovish RBNZ Rhetoric
Italian Bond Auction in Focus Amid Otherwise Lackluster European Calendar

The US Dollar (Ticker: USDollar) was little changed in overnight trade against the majors as currency markets digested yesterday’s volatility in the aftermath of the Federal Reserve policy announcement that sent the greenback down 0.55 percent on average versus its leading counterparts, marketing the largest daily drop in a week. The stocks-linked Australian and Canadian Dollars narrowly outperformed, bolstered by gains on most Asian bourses. The New Zealand Dollar lagged its commodity bloc brethren, stunted by a dovish policy statement from the RBNZ.

Looking ahead, the European economic calendar is relatively quiet, with an Italian bond auction amounting to the only bit of noteworthy event risk. Rome will sell up to €5 billion in inflation-linked and zero-coupon 2014 paper, with traders monitoring average yield and bid-to-cover (a measure of demand) readings to gauge the degree of sovereign solvency stress ahead of next week’s EU leaders’ summit. Italian 5-year CDS rates are ticking narrowly higher ahead of the debt sale, hinting a bit of unease about is creeping back into the markets.

Later in the session the spotlight will turn to the US data docket, with December’s US Durable Goods Orders report expected to rise 2 percent, marking a slowdown from the previous month and underscoring the Fed’s dovish overtures. The Leading Indicators composite gauge as well as New Home Sales figures may offer a counterbalance, with narrow improvements expected on both fronts, but Ben Bernanke’s cautionary rhetoric on the economy as a whole and the housing sector in particular are likely to mean the US Dollar will not find any support in a more forgiving fundamental profile, with only another breakout of risk aversion lining up as a possible catalyst for gains.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
20:00	NZD	Reserve Bank of New Zealand Rate Decision	2.50%	2.50%	2.50%
23:50	JPY	Corporate Service Price (YoY) (DEC)	0.1%	0.0%	-0.2%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
7:00	EUR	German GfK Consumer Confidence Survey (FEB)	5.6	5.6	Medium
7:45	EUR	French Consumer Confidence Indicator (JAN)	80	80	Low
7:45	EUR	French Business Survey Overall Demand (JAN)	-	2	Low
9:00	EUR	Italian Consumer Confidence Index s.a. (JAN)	92.0	91.6	Low
10:00	EUR	Italy to Sell €5B in I/L and 0-Coupon 2014 Bonds	-	-	Medium
10:00	EUR	Italian Hourly Wages (MoM) (DEC)	-	0.0%	Low
10:00	EUR	Italian Hourly Wages (YoY) (DEC)	-	1.5%	Low
11:00	GBP	CBI Reported Sales (JAN)	-6	9	Low