Soft Patch Over? Treasury Yields Give the USD Bulls Hope

Earlier in the Day:

Economic data released through the Asian session this morning was limited to 1^st quarter inflation figures out of Australia, with stats out of Asia on the lighter side this week.

For the Aussie Dollar, consumer prices rose by 1.9% in the 1^st quarter year-on-year, falling short of a forecasted 2.0%, with the rate of inflation unchanged from the 4^th quarter, while quarter-on-quarter, the rate of inflation eased from 0.6% to 0.4%, with the rise in consumer prices falling short of a forecasted 0.5% increase.

The trimmed mean CPI rose by 0.5%, was in line with forecasts, whilst picking up from the 4^th quarter’s 0.4% increase.

According to the ABS, inflationary pressures in the 1^st quarter stemmed from secondary education, prices rising by 3.3%, with gas and other household fuels (+6.0%), pharmaceutical products (+5.6%), vegetables (+3.7%) and medical and hospital services (+1.5%) also contributing.

The gains were partially offset by falls in international holiday travel and accommodation (-2.4%), audio, visual and computing media and services (-6.1%) and furniture (-2.8%).

The Aussie Dollar moved from $0.75897 to $0.75935 upon release of the figures, the Aussie Dollar managing to hold on in spite of the below forecast figures, the RBA having further reason to hold on rates over the near-term. At the time of writing, the Aussie Dollar was flat at $0.7605, recovering from early losses.

With the U.S Dollar revival in recent days, coupled with the risk on sentiment this morning, the Yen saw little appetite in spite of Monday’s 0.98% slide against the Dollar, the Japanese Yen down 0.07% to ¥108.79 at the time of writing, this week’s BoJ monetary policy decision the main event of the week.

In the equity markets, the Nikkei was up 0.61%, while the CSI300 and Hang Seng grabbed the limelight with gains of 1.11% and 1.88% respectively.

For the ASX200, the recovery continued, with a morning gain of 0.46%, the equity markets managing to move ahead in spite of 10-year Treasury yields approaching the 3% mark, with sentiment towards the global economy spurring appetite for risk following upbeat stats out of Europe and the U.S on Monday.

The Day Ahead:

For the EUR, economic data out of the Eurozone this morning includes business sentiment figures out of German, which are forecasted to weaken in April, with both business outlook and current assessment sub-indexes forecasted to soften.

Recent stats out of Germany had been on the softer side until April’s prelim manufacturing PMI figure released on Monday that came in ahead of expectations with growth in the sector only marginally slower than in March.

In spite of the positive private sector PMI numbers, the EUR softened through the day on Monday, with the Dollar rebound weighing, coupled with improving risk sentiment across the markets, which could see the EUR pullback to $1.21 levels this morning.

At the time of writing, the EUR was flat at $1.12209, with today’s stats and market risk appetite through the day the key drivers ahead of Thursday’s anticipated dovish Draghi press conference.

For the Pound, economic data is limited to April’s CBI Industrial Trend Orders that will unlikely have a material impact on the Pound that has been on a slide of late, reversing gains made earlier in the month as the markets continue to price out a May rate hike, which has coincided with a bounce in the Dollar.

With the EU anticipated to reject Theresa May’s Irish borders solution, possible upside from hopes of Britain remaining within the EU’s customs union to resolve the Irish border issue would likely be offset by an in-party rebellion that would see Theresa May’s position at the top in jeapordy. Such a scenario would be negative for the Pound near-term, though staying within the EU’s customs union would ultimately be seen as a positive in a Brexit scenario.

At the time of writing, the Pound was up 0.01% to $1.3942, with Brexit chatter the key driver through the day.

Across the Pond, it’s another big day on the data front, with key stats scheduled for release this afternoon including April’s consumer confidence figures, new home sales for March and house price figures for February.

Focus will be on the consumer confidence figures, with anything in line with or better than forecasted supporting the optimistic view towards the U.S economy, following a softer 1^st quarter, domestic consumption key to U.S growth.

At the time of writing, the Dollar Spot Index was down 0.04% to 90.911, while on an upward trend, the Dollar now down just 1.32% year-to-date, support for the Dollar coming from rising inflation expectations that has led to 10-year Treasury yields hitting 2.96%.