Market wrap: US dollar strength continued - Westpac

Analysts at Westpac explained that the US dollar strength continued, rising against all G10 currencies and breaking some key levels. 

Key Quotes:

The broad US dollar rally that kicked off 19 April accelerated in London/NY trade, again without a particularly clear catalyst in terms of US data or events. 

But the break of various key levels could encourage more dollar bulls near term. This included Dollar Index (US$ against a basket of major currencies, especially EUR) smashing through its 200 day moving average, EUR/USD not coincidentally dropping below 1.2000 for the first time since 11 January and AUD/USD breaking December’s lows to trade 11 month lows below 0.7500. NZD/USD also broke (just) under 0.7000. At time of writing, we are watching USD/JPY’s push towards 110.00. 

EUR/USD fell from 1.2080 to 1.1982, which should please the ECB. AUD/USD finally broke 0.7500 in the NY morning, to a low of 0.7473. NZD followed a similar path, touching 0.6991 – the lowest since December 2017. AUD/NZD remained range-bound between 1.0685 and 1.0720.

US interest rate markets were far less dramatic. The 10yr treasury yield rose only from 2.95% to 2.96%, while 2yr yields rose from 2.49% to 2.50%. Fed fund futures yields price a 100% chance of a rate hike by June, including a 5% chance of a shock hike at the meeting that started overnight. 

Sterling underperformed again (GBP/USD -1.1% to around 1.3600), with data playing a role. UK April manufacturing PMI pulled back more than expected to 53.9 but it was the tone and content of the report that was more negative than the pullback. Markit/CIPS noted further slowing into Q2 and slowdowns in new export orders, sliding business optimism and job reductions in the consumer sector. Brexit and trade tensions were noted and CIPS even suggested that BoE will be “hesitating over whether this really is the best time to raise interest rates again”.

The US ISM manufacturing index eased 2pts in April to 57.3, sub-consensus but still very lofty with the index hitting 14-year highs as recently as February. New orders, production and employment all slipped but detail elsewhere was symptomatic of an economy operating near full employment. Construction spending in March tumbled -1.1%, well below consensus at +0.5%, though the prior month was revised up handily, from 0.1% to 1.0%."