Dollar Gains as Yields Remain Elevated
The U.S. Dollar is trading in strong ranges against major peers as the 10-year Treasury yield stabilizes near its highest level since 2007.
Traders have priced in at least one additional interest rate hike from the Federal Reserve this year, with overnight index swaps and fed funds futures implying an approximate 70% probability that such a hike will come in October. While other central banks have begun, or signaled that they will begin, their own monetary tightening cycles, they are doing so much more cautiously compared to the Fed’s definitively more hawkish forward bias. Energy price pressures remain persistent with Brent Crude continuing to trade near $105 per barrel, thereby keeping inflation in focus. This is despite Saudi Arabia bringing the East-West pipeline back online at roughly half capacity of 3.5 million barrels per day. The Job Openings and Labor Turnover Survey (JOLTS) for the month of August is due to be released at 10am, and the headline Job Openings figure is expected to come in at 7228k.
What to Watch This Week…
- Personal Consumption Expenditures - Wednesday 8:30 am
- Non-Farm Payrolls - Friday 8:30 am
- USA Online is always open
The complete Economic Calendar can be found here.
JPY
The Japanese Yen is the G10’s sole winner versus the Dollar this morning after Japan’s 40-year government bond auction drew its strongest demand since 2020. Part of this demand is stemming from the fact that auction sizes in the 40-year tenor have been reduced over the last several months, but as the Bank of Japan has hiked interest rates in recent months, and seems poised to continue to do so, the increase in JGB yield is also naturally attracting capital inflows. Traders have priced in one additional hike from the BoJ by year’s end, with a roughly 32% probability of it occurring at the October meeting.
AUD
The Australian Dollar is down against the Buck, touching its worst level since late July, following the Reserve Bank of Australia’s interest rate decision at their policy meeting this morning. While the RBA hiked interest rates to a 15-year high of 4.6% in a unanimous vote, as expected, Governor Michele Bullock was decidedly more dovish than she has been over the past several meetings. She stated that the policy board had considered pausing their tightening cycle at this meeting, and that she is hopeful the four hikes delivered this year will be enough to beat inflation. This has caused Traders to pare back further hike expectations, putting the Aussie under pressure.