US Dollar May Extend Rally if Yellen Backs Steeper Rates Path

2016-11-17 08:23:00

Talking Points:

Yen falls Asian stocks rise, BOJ comes up empty in bond-buy operation
Aussie falls on soft jobs data, NZ Dollar gains on quake relief package
US Dollar may extend rally if Yellen endorses steeper rate hike outlook

The Japanese Yen underperformed in overnight trade as most Asian stocks advanced, sapping demand for the anti-risk currency. Japan’s benchmark Nikkei 225 stock index gapped down at the trading open but trended higher through the session to finish the day nearly flat, with USD/JPY pacing the advance. Selling pressure may have been compounded after the Bank of Japan attracted no offers in its first fixed-rate bond buying operation.

The Australian Dollar traded lower after a disappointing set of labor-market figures. The economy added a net 9.8k jobs in October, far fewer than the 16k projected by economists. Furthermore, September’s net job loss was revised to a whopping 29k from the initially reported 9.8k drawdown. The currency fell alongside front-end bond yields, suggesting the results nudged the priced-in RBA outlook toward the dovish side along of the policy spectrum.

The New Zealand Dollar gained as the government said it set aside NZ$7.5 million in a business aid package for areas affected by this week’s earthquake.In a separate announcement, Finance Minister Bill English said preliminary estimates suggest the quake’s negative GDP impact of will be small. A parallel rise in US 2-year Treasury bond futures hints a bit of protective moderation in the US monetary outlook ahead of an upcoming speech form Fed Chair Yellen may have also helped the rates-sensitive currency.

The markets seem to have all but priced in a December rate hike, with Fed Funds futures implying the probability of an increase at 94 percent. This means that it will be comments about the policy trajectory thereafter that ought to be most market-moving. The expected tightening path has steepened since the US presidential election amid bets that President-elect Trump’s fiscal stimulus plans will be inflationary. The US Dollar may extend its eight-day rally if Yellen appears to endorse such thinking.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
0:30	AUD	Employment Change (OCT)	9.8k	16.0k	-29.0k
0:30	AUD	Unemployment Rate (OCT)	5.6%	5.7%	5.6%
0:30	AUD	Part Time Employment Change (OCT)	-31.7k	-	45.3k
0:30	AUD	Full Time Employment Change (OCT)	41.5k	-	-74.3k
0:30	AUD	Participation Rate (OCT)	64.4%	64.6%	64.4%
0:30	AUD	RBA FX Transactions Government (OCT)	-A$450m	-	-A$699m
0:30	AUD	RBA FX Transactions Market (OCT)	A$439m	-	A$673m
0:30	AUD	RBA FX Transactions Other (OCT)	A$26m	-	A$37m

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
9:30	GBP	Retail Sales Ex Auto Fuel (MoM) (OCT)	0.4%	0.0%	Medium
9:30	GBP	Retail Sales Ex Auto Fuel (YoY) (OCT)	5.4%	4.0%	Medium
9:30	GBP	Retail Sales Inc Auto Fuel (MoM) (OCT)	0.5%	0.0%	Medium
9:30	GBP	Retail Sales Inc Auto Fuel (YoY) (OCT)	5.3%	4.1%	Medium
10:00	EUR	Eurozone Construction Output (MoM) (Sep)	-	-0.9%	Low
10:00	EUR	Eurozone Construction Output (YoY) (Sep)	-	0.9%	Low
10:00	EUR	Eurozone CPI (MoM) (OCT)	0.3%	0.4%	Medium
10:00	EUR	Eurozone CPI (YoY) (OCT F)	0.5%	0.4%	Medium
10:00	EUR	Eurozone CPI Core (YoY) (OCT F)	0.8%	0.8%	Medium
12:30	EUR	ECB Publishes Account of Policy Meeting	-	-	Low