Dollar Recovers after Brief Retreat, More Treasury Auctions Ahead

Dollar’s pull back overnight was relatively short-lived as it regains some footing in Asian session today. Sentiments stabilized with US stocks closed higher yesterday, with NASDAQ staged a strong rebound. Treasury yields also retreated mildly. The auction of USD 58B in US 3-year notes was seen as well received, with bid-to-cover ratio at 2.69. But the bigger tests are the 10-year and 30-year auction today and tomorrow.

Technically, Dollar is holding above near term minor support levels for now. Those levels include 1.1951 minor resistance in EUR/USD, 1.4016 minor resistance in GBP/USD, 0.9256 minor support in USD/CHF, 108.08 minor support in USD/JPY, and 1.2574 minor support in USD/CAD. More upside in the greenback remains mildly in favor for the near term.

In Asia, Nikkei closed up 0.03%. Hong Kong HSI is up 0.16%. China Shanghai SSE is up 0.54%. Singapore Strait Times is down -0.99%. Japan 10-year JGB yield is down -0.004 at 0.126. Overnight, DOW rose 0.10%. S&P 500 rose 1.42%. NASDAQ rose 3.69%. 10-year yield dropped -0.050 to 1.546.

RBA Lowe: Australian economy recovering well, but still a long way to go

RBA Governor Philip Lowe said in a speech that “we received further confirmation that the Australian economy is recovering well”, and “these better-than-expected outcomes are very welcome news”. However, “there is still a long way to go and that the Australian economy is operating well short of full capacity”.

“Over the past couple of weeks market pricing has implied an expectation of possible increases in the cash rate as early as late next year and then again in 2023”, he acknowledged. But, “this is not an expectation that we share”.

“Our judgement is that we are unlikely to see wages growth consistent with the inflation target before 2024,” he reiterated. “This is the basis for our assessment that the cash rate is very likely to remain at its current level until at least 2024.”

In the Q&A session, Lowe also said he’d be more “comfortable” if Australian Dollar’s exchange rate is lower, “because we need to get the unemployment rate down, inflation back to target and a lower currency would help us get there.” But the currency is not overvalued with commodity prices very high and interest rate differentials stable.

Australia Westpac consumer sentiment rose to 111.8 in March, close to 10-year high

Australia Westpac Consumer Sentiment rose 2.6% to 111.8 in March, from February’s 109.1. It’s now just 0.2 pts below the 10-year high recorded in December. “the main factors driving the Index are improving economic conditions and prospects, both domestically and abroad, particularly as they relate to our labour market.”

Westpac said RBA should be “well pleased” with the economic progress. “It is unlikely to make any changes to its current policy settings or signal any likelihood of changes in the near future.”

RBNZ removes some temporary liquidity facilities as financial market conditions improved significantly

RBNZ announced to remove some of the temporary liquidity facilities put in place during the COVID-19 pandemic. Measures include term auction and corporate open market operation (COMO) facilities, which allowed banks to borrow money in exchange for eligible corporate and asset-backed securities.

Head of Financial Markets Vanessa Rayner says, “Financial market conditions have improved significantly since March 2020 when these facilities were introduced and the usage of these special facilities has been very low in the last six months. In addition, the Large Scale Asset Purchase, Term Lending Facility, and Funding for Lending programmes have resulted in a significant increase in system liquidity and a lower cost of funding for banks.”

BoC likely a non-event, CAD/JPY retreats but outlook stays bullish

BoC is generally expected to keep monetary policy unchanged today. Overnight rate will be held at effective lower bound of 0.25%. The size of asset purchases will also stay unchanged at CAD4B per week. There will be no press conference and updated economic projections will not be released until April. So, today’s announce is more likely a non-event than not.

Nevertheless, the central bank should acknowledge the better-than-expected developments since the January meeting. There have been increasing speculations that the central bank will reduce the size to CAD3B per week at the April meeting. We will see if there will be hints of such as move in the policy statement.

Some BoC previews:

• BOC Preview: Caution over Pandemic Uncertainty While Acknowledging Better-than-Projected Growth
• Bank of Canada to Stand Pat, Keep One Eye on the Loonie as Recovery Gathers Steam

Canadian Dollar is currently trading as the strongest for the month, partly helped by strong rally in oil price. CAD/JPY retreated mildly after hitting 86.35 earlier this week. Some consolidations would likely be seen first but overall outlook will stay bullish as long as 83.59 support holds. We’d expect the up trend form 73.80 to extend to 161.8% projection of 74.76 to 81.91 from 77.91 at 89.47 down the road.

Elsewhere

China’s CPI improved to -0.2% yoy in February, up from -0.3% yoy, above expectation of -0.3% yoy. PPI accelerated sharply to 1.7% yoy, up from 0.3% yoy, above expectation of 0.3% yoy. That’s the highest reading since November 2018.

France industrial output will be released in European session. US CPI will be featured later in the day.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7653; (P) 0.7689; (R1) 0.7758; More…

Intraday bias in AUD/USD is neutral for the moment and outlook is unchanged. Correction from 0.8006 could extend lower. But still, overall outlook will stay bullish as long as 0.7563 support holds. On the upside, break of 0.7837 minor resistance will bring retest of 0.8006 high. However, firm break of 0.7563 will indicate that deeper correction is underway, back towards 0.7413 resistance turned support.

In the bigger picture, whole down trend from 1.1079 (2001 high) should have completed at 0.5506 (2020 low) already. Rise from 0.5506 could either be the start of a long term up trend, or a corrective rise. Reactions to 0.8135 key resistance will reveal which case it is. But in any case, medium term rally is expected to continue as long as 0.7413 resistance turned support holds.

Economic Indicators Update