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For The U.S. Dollar It's All About Yields This Week

Published 06/19/2017, 06:54 AM
Updated 07/09/2023, 06:31 AM
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Market Drivers June 19, 2017

Europe and Asia
JPY: Trade Balance -203B vs. 75B eyed

North America
No Data

It's been a very quiet start of the week in FX with virtually no fresh economic data on the calendar today. In Japan the Trade Balance came in with a surprising deficit of -203B yen but the miss was mainly caused by the rising energy cost and exports actually increased at a healthy 14% pace. Nevertheless, the news was seen as negative for the yen and pushed USD/JPY to 111.21 before the pair retreated back to the figure in quiet European trade. Elsewhere, kiwi was the star of the show in Asian session trade rising to within a pip of the 7300 figure before drifting back towards the .7250 level.

There was no specific catalyst for the move, although both PMI data and consumer confidence numbers came in better than expected. The kiwi appears to be the beneficiary of consistent carry trade flows as markets pare back any rate hike expectations from US. With US yields below 2.15% on the benchmark 10-year bond, kiwi's 1.50% short term yield looks like King's ransom to desperate investors. Still, the unit could be vulnerable to a deeper selloff if the RBNZ decides to jawbone at the post-decision presser this Wednesday.

The RBNZ policy decision is shaping up to be the biggest event on the calendar this week and if RBNZ suggests that it may be open to further accommodation the kiwi could quickly tumble below .7200. New Zealand monetary officials would prefer to see the exchange rate below the .7000 cent mark and will no doubt try to talk the unit down in the press conference. Still, there is very little they can do if US yields do not cooperate with their agenda. Indeed, with virtually no meaningful data on the docket this week its will be all about US yields in the FX market and the dollar will only gain it groove back if the 10-year bond can rise above the 2.20% level as the week progresses.

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