Stronger US rates fuel dollar rally
The greenback continued to extend gains on Wednesday amid an upside shift in the US Treasury curve. Since the beginning of the week, the buck appreciated against all major currencies, with EM currencies taking the biggest hit. The Mexican pesos tumbled more 1.90% as USD/MXN rose to 18.95, while the South African rand gave up 2.6%, with USD/ZAR rising to 12.45.
EM currencies were not the only one to suffer from this basic shift, as G10 currencies have not emerged unscathed. The New Zealand Dollar took the biggest hit, as investors continued to unwind long bullish bets, and slid another 0.50% this morning. The Japanese yes also went under heavy selling pressure as USD/JPY climbed back above the 109 threshold.
Several factors can explain the rapid appreciation of the US dollar over the last few days. Obviously, the surge in interest rates has made long dollar trade more appealing – the 10-year Treasury yield broke the 3% mark, while the 2-year one hit 2.5% as inflation expectations kept improving – but the ongoing sell-off in the equity market has also helped to deteriorate the overall risk sentiment, which benefits the dollar.
Swiss commercial balance slackening amid weaker swissie
Known for its strong trade balance surplus, Switzerland is giving signs of deceleration for Q1, though Swiss watch exports continues its expansion for five consecutive months, valued at 4.80% (CHF 1.67 billion), largely above 6-year average of -0.50% (due to mid-2015 – 2016 export decrease). Impeded by a strong rise of imports in Q1 of 4.10% (prior: 4.80%), essentially caused by chemicals and pharmaceuticals (+14.70% for Q1), March trade balance remains at three-and-a-half years low (CHF 1.77 billion, 6-year average: CHF 2.60 billion) as the cost of imports is beginning to be felt due to convergence towards USD/CHF parity and EUR/CHF at 1.20 since the beginning of Q3 2017.
Since Swiss National Bank tone towards swissie valuation is being that it is highly valued (to distinguish with previous “overvalued” statement) while maintaining a dovish view on the national economy, there is no reason to expect any EUR/CHF massive changes above or below 1.20 for the moment.
USD/CHF strong rise since March 2018 (+4.26%) continues, recovering from 0.9188 low (16/02/2018) and approaching 0.99. The pair approaches the 0.9830 range in the short-term.
