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US Dollar Looks to Fed Commentary for a Lifeline

US Dollar Looks to Fed Commentary for a Lifeline

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • US Dollar down as FOMC impact continues to reverberate
  • Nearing RBNZ rate decision offers a boost to the NZ Dollar
  • G20 outcome may stoke risk aversion, Fed’s Evans to speak

The US Dollar traded lower against its leading counterparts as front-end Treasury bond yields declined, undermining rates-based support for the benchmark currency. The move may amount to follow-on momentum from last week’s FOMC rate decision. The greenback slumped after Chair Yellen and company issued a broadly expected rate hike but offered nothing to suggest a steeper tightening path thereafter.

The New Zealand Dollar outperformed despite data showing consumer confidence ebbed in the first quarter and service-sector activity growth slowed in February. The currency’s strength may be reflecting pre-positioning ahead of this week’s RBNZ meeting. A rate hike isn’t expected but markets price in at least one increase in the next 12 months. The statement accompanying the announcement may offer timing clues.

From here, a lackluster economic data docket in European and US trading hours puts Fed-speak in the spotlight. Comments from the President of the central bank’s Chicago branch Charles Evans are due to cross the wires. As noted in the weekly US Dollar forecast, the battered unit may find a lifeline as a steady stream of official commentary reiterates an intent to hike rates while their G10 counterparts sit idly by.

Sentiment trends may emerge as another potent driver of price action. Stocks stumbled in Asian trade and echoes of risk aversion appeared in the commodities space after the standard admonishment of protectionism vanished from the text of the communique after a G20 finance ministers’ meeting, allegedly at the behest of US Treasury Secretary Steven Mnuchin.

This fuels worries that the Trump administration means what it says when it threatens to tear up free trade agreements and even questions the utility of the WTO. Upending the international commercial order is likely to bode ill for global growth, so markets are understandably unnerved. S&P 500futures are pointing lower ahead of the opening bell on Wall Street, which may yet boost the anti-risk Yen before the day is out.

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Asia Session

European Session

** All times listed in GMT. See the full DailyFX economic calendar here.

--- 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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