US Treasuries send the dollar lower

As US yields retreat, dollar dips

All roads lead to the US 10-year yield now, it seems, and currency markets are no exception. A firm 30-year auction and a post-inflation data fall in US yields saw the US dollar head south. The dollar index fell by 0.30% to 91.82, with the index having now spent the last five days below its 200-day moving average (DMA).

With the 3-year, 10-year and 30-year bond auctions all successfully concluding this week, the flame of a steeper yield curve has lessened markedly.

Developed market currencies rallied with EUR/USD climbing 0.30% to 1.1950, having broken out of its descending wedge formation last week. The single currency should test 1.2000 this week, with the wedge formation targeting further gains to 1.2200. USD/JPY has fallen to 108.90 as of this morning, and failure of critical support at 108.40 would be another confirmation that the US dollar rally has run its course for now.

Key risk appetite barometers, the Australian and New Zealand dollars notably, had modest rallies overnight, rising to the top of their recent weekly ranges. NZD/USD has rallied through resistance at 0.7060 to 0.7090 today after the RBNZ remained unchanged, just below its 0.7100 pivot. The fact that both Australasians have failed to join the US dollar retreat wholeheartedly is one of the few notes of caution I have about recent price action at the moment.

Asian currencies rallied modestly overnight on US dollar weakness and lowered US yields. Again, except for the Indian rupee, cautious optimism rather than exuberance is typifying regional currency trading right now. With all roads leading to the US 10-year yields, I can’t blame them, and investors should keep monitoring this benchmark for the US dollar’s next move.

The data calendar across Europe and the US is second-tier for the rest of the day. Still, we do have Federal Reserve Chairman Jerome Powell and at least four other Fed Governors speaking late this evening Asia time. Any one of them could provide some short-term volatility if they deviate from the Federal Reserve playbook, which remains decidedly dovish.

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