Bond Yields Lift on US PPI Climb, Jobless Rate Falls; DXY Soars

AUD Tumbles as Iron Ore Prices Plunge; Euro, Yen, EMFX Weaken

Summary:

The Dollar Index (DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies soared to 103.00, up 0.63% from 102.42 yesterday.

US Producer Prices remained elevated, climbing 0.6% in February, beating economist’s forecasts at 0.3%. Meantime, Weekly Claims for Unemployment benefits in the US dropped to 209,000 from 217,000 previously, beating estimates at 218,000. 

The data lifted US bond yields, with the benchmark 10-year rate up a whopping 10 basis points to 4.29%. Two-year US rates rose to 4.69% from 4.63%. Traders trimmed their bets for Federal Reserve rate cuts in 2024. 

Other global treasury rates rose but to a lesser extent than those of its US counterpart. Germany’s 10-year Bund yield climbed to 4.09% (4.02%). Japan’s 10-year JGB yield edged up to 0.77% from 0.75% previously. Australia’s 10-year bond yield dipped to 4.05% (4.06%). 

The Australian Dollar (AUD/USD) underperformed, tumbling 0.69% to 0.6575 from 0.6625 yesterday. Prices for Iron Ore, Australia’s largest export, plummeted nearly 5% on weakening Chinese demand. 

Against the Yen, the Dollar (USD/JPY) rebounded to 148.30 from 147.65 yesterday, a 1-week high. The possibility of a BOJ rate hike at their March meeting next week kept a lid on USD/JPY.  

The Euro (EUR/USD) weakened to 1.0880, near its overnight lows, from 1.0950 yesterday. Broad-based US Dollar strength also pushed the British Pound (GBP/USD) lower to 1.2747 (1.2800). 

Against the Offshore Chinese Yuan, the US Dollar (USD/CNH) rallied to 7.2020 from 7.1930. The Greenback finished higher against the Asian and Emerging Market Currencies. 

The USD/SGD (US Dollar-Singapore Dollar) pair rose to 1.3362 from 1.3320 yesterday while the USD/THB pair (Dollar-Thai Baht) rallied to 35.80, up from 35.65 yesterday. 

Other economic data released yesterday saw US February Retail Sales up 0.6%, lower than forecasts at 0.8%, but up from -1.1% in January which was revised lower from -0.8%. 

The Eurozone January Industrial Production (m/m) fell to -3.2% from 2.6% previously, missing estimates at -1.5%. US Core Retail Sales rose 0.3% (m/m), against forecasts at 0.5%. 

• AUD/USD – the Aussie Battler tumbled to settle at 0.6575 from yesterday’s open at 0.6625. In choppy trade, the overnight high recorded was at 0.6632 while the overnight low was at 0.6569. Yesterday iron ore contracts on the Singapore exchanged tumbled to their lowest close since 31 August 2023. Which weighed on the Aussie Dollar.
• USD/JPY – the Greenback rebounded against the Yen as the mixed US data kept markets guessing on whether the Fed would deliver interest rate cuts in June. The overnight high traded for the USD/JPY pair was 148.36 while the low recorded was 147.43.
• EUR/USD – the Euro broke through the 1.0900 support level, finishing at 1.0880, it’s overnight and fresh one-week low. In choppy trade, the shared currency climbed to an overnight peak at 1.0955 before tumbling lower. The overnight high traded was 1.0955.
• GBP/USD – Sterling slid against the overall stronger Greenback to 1.2747, down from yesterday’s 1.2800. In volatile trade of its own, the British Pound traded to an overnight high at 1.2824 before tumbling. The overnight low recorded was at 1.2730. 

On the Lookout: 

Today’s economic data calendar is heavy and kicks off with New Zealand’s NZ Business PMI for February (f/c 48.1 from 47.3 – ACY Finlogix). Australia follows with its March Consumer Inflation Expectations (f/c 4.4% from 4.5% - ACY Finlogix). China releases its Annual February House Price Index (y/y f/c -0.3% from -0.7%). France follows with its February Inflation Rate Final (m/m f/c 0.8% from -0.2%; y/y f/c 2.9% from 3.1% - ACY Finlogix). 

Italy follows with its January Retail Sales (m/m f/c 0.3% from -0.1%; y/y f/c 0.7% from 0.3% - ACY Finlogix). Canada kicks off North America with its Canadian February Housing Starts (f/c 230K from 223.6K – ACY Finlogix), Canadian January Wholesale Sales (m/m -0.6% from 0.3% - ACY Finlogix). The US rounds up today’s economic data releases with its US February Import Prices (m/m f/c 0.2% from 0.8%; US February Export Prices (m/m f/c 0.3% from 0.8% - ACY Finlogix).

The US rounds up today’s data releases with its March New York Empire State Manufacturing Index (f/c -7 from -2.4 previously), US February Capacity Utilization (f/c 78.5% from 78.5% -ACY Finlogix), US February Industrial Production (m/m f/c 0% from -0.1% - ACY Finlogix). US February Manufacturing Production is next (m/m f/c 0.3% from -0.5%; y/y f/c -0.4% from 0.9%). Finally, we have the US Preliminary March Consumer Sentiment (f/c 76.9 from 76.9 – ACY Finlogix). 

Trading Perspective: 

The climb in US factory prices, which beat forecasts, should be mildly supportive for the Dollar. The fact that the Greenback is higher despite mixed economic data suggests that the Greenback has limited upside potential today. We would need to see further strong US economic data releases today. 
Every yield tells a story. FX traders should continue to monitor the US bond yields. The move up in the US10-year yield to 4.29% from 4.19% is huge and should keep a bid on the Greenback today. 
FX traders should monitor the 10-year US treasury yield, the 4.35% level is near February 28 highs (4.32%). A clean break above 4.35% would be supportive for the Greenback and could lift the DXY (Dollar Index) up through 103.30 with the target at 104.20.  

• AUD/USD – The combination of softer iron ore prices and an overall stronger US Dollar weighed heavily on the Aussie Battler. On the day, look for immediate support at 0.6545 followed by 0.6505 and 0.6485. On the topside, look for immediate resistance at 0.6605 followed by 0.6635 and 0.6665. Look for the Aussie to remain heavy with a likely trading range today of 0.6540-0.6640. Trade the range with the preference to buy Aussie on weakness. The lower 0.65 cent level looks like a decent level to own some Aussie. If we trade lower than 0.6470, then I’m wrong and would stop out. Otherwise, the levels are attractive to buy the Battler despite current US Dollar strength.

• USD/JPY – the Dollar rebounded against the Yen in another choppy trading session to 148.30, up from yesterday’s 147.65. Look for immediate resistance today at 148.40 followed by 148.70 and 149.00. Immediate support can be found at 148.00, 147.70 and 147.40. For today, expect a likely trading range of 147.50-148.50. Watch the US bond market. Should the US 10-year yield climb further, the USD/JPY has potential back up through 150.00 again. 
• EUR/USD – The shared currency reversed its rally, easing against the Greenback to 1.0880 from 1.0950 yesterday. On the day look for immediate support at 1.0850 followed by 1.0820. On the topside, immediate resistance can be found at 1.0920, 1.0950 and 1.0980. Expect another choppy session in the Euro today, likely between 1.0850-1.0950. Prefer to sell Euro on strength.
• GBP/USD – Sterling was pounded lower against the overall stronger US Dollar to 1.2747, down from yesterday’s 1.2800. Look for immediate support today at 1.2720 followed by 1.2690 and 1.2660. Immediate resistance can be found at 1.2780 followed by1.2810 and 1.2840. Look for further choppy trade in this currency pair, likely between 1.2720-1.2820. Trade the range, the preference is to sell Sterling on strength today.

Happy Friday and trading all. Have a top weekend too. 

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