Treasury Yields on the Cusp of 3% Puts the USD in the Driving Seat

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, with stats limited to April’s retail credit card transactions out of New Zealand and the UK’s BRC Retail Sales Monitor figures for April.

For the Kiwi Dollar, it was another weak set of numbers out of NZ, with credit card transactions falling 2.2% to reverse March’s revised 1.5% increase, with forecasts having pointed to a flat number. StatsNZ reported that

• Card spending fell across three of the six retail industries, with spending on consumables sliding by 3.6%, fuel by 2.9%, despite a marked increase in fuel prices, and hospitality by 0.9%.

The Kiwi Dollar moved from $0.69667 to $0.6963 upon release of the figures, which came ahead of Thursday’s RBNZ monetary policy meeting, the numbers likely to be of some concern going into the 2^nd quarter. At the time of writing, the Kiwi Dollar was down 0.04% to $0.6968.

Out of the UK, the BRC Retail Sales Monitor slumped 4.2% in April, year-on-year, falling far more than a forecasted 0.7% decline, while more than offsetting March’s 1.4% rise.

While the numbers will have been skewed with the timing of Easter, it was the worst figure on record and the timing couldn’t be worse, with the BoE monetary policy decision and inflation report due on Thursday.

The Pound moved from $1.3548 to $1.35538 upon release of the figures, the Asian markets largely brushing aside the numbers, though things could be quite different going into the European open.

Elsewhere, the Aussie Dollar was down 0.24% to $0.7437 at the time of writing, with the Yen down 0.32% to ¥109.48 against the U.S Dollar, the Dollar on the move following Trump’s decision to hit Iran with punitive economic sanctions, while stating a willingness to negotiate a new agreement

In the equity markets, the response to the Trump decision on the Iran nuclear agreement was muted, with Hang Seng and ASX200 in positive territory at the time of writing, while the Nikkei and CSI300 saw red.

The Day Ahead:

For the EUR, there are no material stats scheduled for release out of the Eurozone this morning, leaving the EUR in the hands of sentiment towards policy divergence and Trump’s plans to hit Iran with sanctions, while showing a willingness to go back to the negotiating table.

Economic data out of Germany on Tuesday will have eased some concerns over the Eurozone economy, following better than expected trade and industrial production figures at the end of the 1^st quarter, though much will depend on sentiment towards the Dollar and the ECB’s economic bulletin due out tomorrow.

At the time of writing, the EUR was down 0.08% to $1.1855, adding to Monday’s 0.49% fall to levels not seen since late December, as the markets continue price policy divergence in favour of the resurgent Dollar.

For the Pound, it’s the calm before the storm, as the markets look ahead to Super Thursday, which will certainly provide the Pound with direction through the day, with trade and industrial production figures due for release ahead of the BoE’s monetary policy decision and release of the inflation report.

This morning’s BRC Retail Sales Monitor numbers will have raised further concerns over the state of the UK economy going into the 2^nd quarter, in spite of the Pound showing little response to the figures early this morning.

At the time of writing, the Pound was down 0.10% to $1.3533, giving up gains from earlier in the day, with more weakness on the cards as the market continues to become more dovish on the BoE’s policy outlook and the Dollar finds its footing. There are no further stats scheduled to release out of the UK to muddy the waters.

Across the Pond, stats out of the U.S are limited to April’s wholesale price inflation figures that will provide some direction for the Dollar ahead of tomorrow’s consumer price numbers, though the numbers will need to be quite dire to knock the Dollar off its upward path, as FOMC members get hawkish on policy.

At the time of writing, the Dollar Spot Index was up 0.08% to 93.194, following Tuesday’s 0.4% gain to 93 levels for the first time since late December of last year.

Across the borders, stats out of Canada are limited to March’s building permit figures that are forecasted to be Loonie positive, though again, we don’t expect the stats to have a material impact this week, with focus on NAFTA talks.

At the time of writing, the Loonie was down 0.01% to C$1.2951 against the U.S Dollar, with the Loonie having found little support from the jump in oil prices of late.