US Dollar Selling May Pause But the Respite is Unlikely to Last

2018-02-16 05:30:00

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Asia Pacific Trading Session
European Trading Session

Talking Points:

Sluggish currency markets look past speech from RBA Governor Lowe
UofM consumer confidence gauge may not do much for the US Dollar
Profit-taking may translate into brief corrections of recent price moves

Currency markets drifted sideways in Asia Pacific trade. RBA Governor Philip Lowe testified in Parliament, but his remarks went seemingly unnoticed by markets busy digesting earlier volatility. Mr Lowe said that the next move in interest rates is likely to be up but added that he doesn’t see a strong case for a near-term policy adjustment. Commenting on the Australian Dollar, he called the current exchange rate “manageable”.

Looking ahead, a lackluster offering on the European data docket is likely to see markets looking ahead to the release of the University of Michigan’s US consumer confidence gauge. A downtick is expected, marking the fourth consecutive month of deterioration. Anything short of a dramatic upside surprise seems unlikely to offer a lifeline for the US Dollar however.

The greenback’s recovery launched in early February was built on the premise that the on-coming Fed rate hike cycle may be far steeper than investors had accounted for. This was inspired by an unexpected jump in wage inflation, which hit a nine-year high in January. When headline CPI data fell short of delivering a similar result, markets swiftly return to previously dominant and firmly anti-USD trends.

With little of substance to derail momentum, the markets may opt for a bit of corrective profit-taking ahead of the weekend. That might see the US currency stabilize a bit while its G10 FX counterparts take a brief step backward. This is unlikely to be much more than a brief reprieve however, at least until minutes from January’s FOMC meeting are released next week.

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