Dollar consolidation continues nudged by improving U.S. data

Andrew Cummings
August 22, 2017

The Australian bonds traded almost flat Tuesday as investors await cues from the Federal Reserve's Jackson Hole Economic Policy Symposium scheduled for this Friday in Wyoming.

Despite recent losses, it is still up more than 11 percent this year, making it the best performing currency in the G10 currency space.

Fed's chair Yellen will be speaking on financial stability, while ECB President Mario Draghi is expected to stick to "the script of the conference" rather than talking of monetary policy pullback. We do not expect her to say much about the ongoing debate over inflation.

Deutsche Bank Markets Research team agrees the Fed "should matter more than the ECB at Jackson Hole", highlighting the fact it is "in the driving seat" in terms of further interest rate moves.

The Reserve Bank of Australia: Minutes from the RBA this week and more talk about currency strength, were the order of the day for the Aussie.

"The weight of euro positioning has finally stopped this advance we have seen over the last few months". About $45 billion of euro-dollar currency options will expire in the three days leading up to the Wyoming meeting.

The New Zealand dollar rose against a broadly weaker greenback as U.S. joint exercises with South Korea put tensions with the North back into focus while the lack of economic news had traders looking ahead to the central banker symposium at Jackson Hole.

Similarly, Yellen is unlikely to add any fresh policy insight in her address on Friday but traders will nevertheless be looking for signs on whether the Fed chief is becoming increasingly anxious about low inflation.

In oil markets, Brent crude prices were down 0.8% on Monday morning at around 52.40 United States dollars per barrel amid reports of rising USA production, worsening fears over a growing global oil glut.

Also, the markets were jittery after the start of annual military exercises by South Korean and US forces angered North Korea, which denounced the joint drills as a step toward nuclear war.

The benchmark 10-year U.S. Treasuries yield skidded to 2.162 percent on Friday, its lowest since late June, before closing at 2.194 percent. There is also an ongoing concern regarding Trump's economic plan for the country. But it flags the fact that the European Central Bank has already said Draghi will focus on the conference theme "and avoid dealing with sensitive monetary policy matters". Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. Thus, although we see the dollar clawing back some gains in the next week or so, we don't think that it will make a sustained recovery in the long term especially not against the Euro and AUD. "The global economy, many economies, still need expansionary policy - but I don't think we need this extreme form of monetary policy", said Robert Bergqvist, chief economist at Swedish bank SEB.

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