Talking Points:
- US Dollar provided a lukewarm response after the US Treasury’s TIC statistics
- Net TIC inflows swell to $118.4 bln in Jan. compared to -$106.8 bln in Dec.
- Selling/buying of treasury bonds show markets’ indecision of FOMC policy outlook
See how retail traders are positioned in the US Dollar with the DailyFX SSI.
The US Dollar did not display an outsized move against a basket of currencies after the Department of Treasury released its capital flow statistics. The headline Treasury International Capital (TIC) figure for January showed a net inflow of $118.4 billion, the highest reading since July 2015. The largest buyer of US debt, China, reduced its treasury holdings by $8.2b to total $1.24 trillion. On the other hand, Japan increased its exposure of US debt by $900 million to $1.12 trillion.
The data for Long-term TIC flows was better than its previous figure but still showed a selling of securities on net. The print was -$12 billion for January compared to -$29.4 billion in December.
The lack of consensus in the purchasing/selling of dollar-denominated securities may highlight the market’s confusion on whether the Federal Reserve will continue or hold on its rate hike cycle. According to Fed Funds futures, traders have priced in a 94 percent probability the FOMC will not alter interest rates at its March 16 policy meeting. Although near-term policy outlook speculation is for the central bank to remain constant, the financial markets’ anticipation for a rise in the base lending rate over the course of the year has been firming since February. Currently, the December 2016 Fed Funds future contract show the markets are pricing in one interest rate hike for the year.
