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AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

2011-09-14 04:00:00
John Kicklighter, Chief Currency Strategist
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  • European Currency-Based Majors Deviate from Rate Expectations
  • AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations
  • Risk Trends are Congestive but Volatile
AUDUSD_NZDUSD_and_USDCAD_Guided_by_Yield_Expectations_body_Picture_1.png, AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

Rate Expectations

The change in the 12-month interest rate outlook was generally modest from last week; but the forecast for the eight major central banks is still leaning towards the dovish side. This is a discouraging bearing for the broader market as interest rates themselves are still historically modest. Without stimulus, the lack of a reward potential would have left us to succumb to the burgeoning risks long ago. However, confidence in stimulus is quickly diminishing; and a further withdrawal of yield expectations could tip the scales even further to encourage a full-scale reverse in carry trade interest.

Looking at the yield forecast, we can see that the heaviest outlooks rest with the Reserve Bank of Australia, the Bank of Canada and the European Central Bank. To the market, the spread of the European financial crisis from the sovereign space to the general banking level is a red flag that the central bank may soon need to step up its accommodation to a region that is already seeing severe recessions for some of its members. That said, the most remarkable standing is for the RBA which is currently pricing in 140 bps of rate cuts over the coming 12 months as the market deems the current benchmark simply too high. Dovishness has grown the point where there is now certainty of a 25bp cut at the next meeting and even further speculation of a 50bp cut. Noteworthy is the upcoming RBNZ rate decision as this is the last remaining hike candidate.

EURUSD

AUDUSD_NZDUSD_and_USDCAD_Guided_by_Yield_Expectations_body_Picture_4.png, AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

GBPUSD

AUDUSD_NZDUSD_and_USDCAD_Guided_by_Yield_Expectations_body_Picture_7.png, AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

USDJPY

AUDUSD_NZDUSD_and_USDCAD_Guided_by_Yield_Expectations_body_Picture_10.png, AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

USDCHF

AUDUSD_NZDUSD_and_USDCAD_Guided_by_Yield_Expectations_body_Picture_13.png, AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

USDCAD

AUDUSD_NZDUSD_and_USDCAD_Guided_by_Yield_Expectations_body_Picture_16.png, AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

AUDUSD

AUDUSD_NZDUSD_and_USDCAD_Guided_by_Yield_Expectations_body_Picture_19.png, AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

NZDUSD

AUDUSD_NZDUSD_and_USDCAD_Guided_by_Yield_Expectations_body_Picture_22.png, AUDUSD, NZDUSD and USDCAD Guided by Yield Expectations

Written by: John Kicklighter, Senior 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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