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Yen Sinks on Global Bond Rout, US Dollar Rally May Extend on CPI

Yen Sinks on Global Bond Rout, US Dollar Rally May Extend on CPI

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Yen slumps as global bond yields soar following FOMC rate decision
  • New Zealand Dollar hurt as yield advantage shrinks, Aussie holds up
  • Upbeat CPI may add fuel to US Dollar rally as Pound ignores BOE

The JapaneseYen underperformed as Asian bond yields followed US Treasury rates higher following the Federal Reserve monetary policy announcement. The FOMC said it now expects to raise the benchmark lending rate three times next year, up from a pair of hikes projected in September.

Higher borrowing costs in the US may boost the cost of capital in general considering that the US Dollar is the undisputed global reserve currency. This narrative seems to be pushing up yields market-wide, spurring carry trade demand and weighing on the go-to funding currency.

The New Zealand Dollar likewise traded lower against a backdrop of narrowing yield spreads between the heretofore go-to carry venue in the G10 FX space and its counterparts. The Australian Dollar managed to hold up following an upbeat set of labor-market figures.

For its part, the greenback continued to climb having posted its largest daily gain in nearly six months in the aftermath of the FOMC meeting as markets outside the Western Hemisphere took their turn to price in the announcement. The upcoming release of November’s CPI data may extend the move further.

The benchmark year-on-year inflation rate is expected to rise to 1.7 percent, the highest in 25 months. An upside surprise in line with a recent outperformance of US economic news-flow may drive continued steepening of the projected tightening path.

The Bank of England policy decision headlines the docket in European hours. Governor Mark Carney and company are widely expected to remain in wait-and-see mode as they monitor the impact of the Brexit referendum on growth and inflation.

On balance, the announcement may mean relatively little for the British Pound unless minutes from the meeting or the voting pattern on the policy-setting MPC committee implies a sense of urgency in countervailing building price pressure. This seems rather unlikely however.

Join our BOE rate decision webinar to follow the announcement and its impact live!

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:30

NZD

BusinessNZ Mfg PMI (NOV)

54.4

-

55.1

21:45

NZD

Value of All Buildings SA (QoQ) (3Q)

1.4%

2.1%

5.3%

0:00

AUD

Consumer Inflation Expectation (DEC)

3.4%

-

3.2%

0:30

AUD

Employment Change (NOV)

39.1k

17.5k

15.2k

0:30

AUD

Unemployment Rate (NOV)

5.7%

5.6%

5.6%

0:30

AUD

Full Time Employment Change (NOV)

39.3k

-

45.7k

0:30

AUD

Part Time Employment Change (NOV)

-0.2k

-

-30.5k

0:30

AUD

Participation Rate (NOV)

64.6%

64.5%

64.4%

0:30

JPY

Nikkei Japan PMI Mfg (DEC P)

51.9

-

51.3

0:30

AUD

RBA FX Transactions Government (NOV)

-A$549m

-

-A$450m

0:30

AUD

RBA FX Transactions Market (NOV)

A$503m

-

A$439m

0:30

AUD

RBA FX Transactions Other (NOV)

A$34m

-

A$26m

6:00

JPY

Machine Tool Orders (YoY) (NOV F)

-5.6%

-

-5.6%

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:00

EUR

Markit France Mfg PMI (DEC P)

53.5 (A)

51.7

Low

8:00

EUR

Markit France Services PMI (DEC P)

52.6 (A)

51.6

Low

8:00

EUR

Markit France Composite PMI (DEC P)

52.8 (A)

51.4

Low

8:30

EUR

Markit/BME Germany Mfg PMI (DEC P)

55.5 (A)

54.3

Medium

8:30

EUR

Markit Germany Services PMI (DEC P)

53.8 (A)

55.1

Medium

8:30

EUR

Markit/BME Germany Composite PMI (DEC P)

54.8 (A)

55.0

Medium

8:30

CHF

SNB 3m Libor Lower Target Range

-1.25% (A)

-1.25%

High

8:30

CHF

SNB 3m Libor Upper Target Range

-0.25% (A)

-0.25%

High

8:30

CHF

SNB Sight Deposit Interest Rate

-0.75% (A)

-0.75%

High

9:00

EUR

Markit Eurozone Mfg PMI (DEC P)

54.9 (A)

53.7

Medium

9:00

EUR

Markit Eurozone Services PMI (DEC P)

53.1 (A)

53.8

Medium

9:00

EUR

Markit Eurozone Composite PMI (DEC P)

53.9 (A)

53.9

Medium

9:30

GBP

Retail Sales Ex Auto Fuel (MoM) (NOV)

0.5% (A)

2.0%

Medium

9:30

GBP

Retail Sales Ex Auto Fuel (YoY) (NOV)

6.6% (A)

7.6%

Medium

9:30

GBP

Retail Sales Inc Auto Fuel (MoM) (NOV)

0.2% (A)

1.9%

Medium

9:30

GBP

Retail Sales Inc Auto Fuel (YoY) (NOV)

5.9% (A)

7.4%

Medium

10:30

EUR

ECB Publishes Allotment of TLTRO-II

-

-

Low

12:00

GBP

Bank of England Bank Rate

0.25%

0.25%

High

12:00

GBP

BOE Asset Purchase Target (DEC)

435b

435b

High

12:00

GBP

BOE Corporate Bond Target (DEC)

10b

10b

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0222

1.0395

1.0465

1.0568

1.0638

1.0741

1.0914

GBP/USD

1.2224

1.2415

1.2489

1.2606

1.2680

1.2797

1.2988

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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