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By xemarketanalysis May 15, 2018 11:41 am
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    XE Market Analysis: Mighty Dollar Buoyed by Higher US Treasury Yields

    OVERVIEW

    • The Greenback is trading higher, up 0.4% against the basket of major currencies.
    • Investors are optimistic on trade relations between China and the US.
    • Turmoil in the Middle East sends WTI 0.85% higher to trade $71.55 a barrel.

    HIGHLIGHT

    West Texas Intermediate crude for June delivery is trading at a four-year high this morning. A barrel of oil gained 60 cents to trade at $71.55. Heightened risks in the Middle East and the return of sanctions against Iran have been the catalyst behind the recent moves. We also see the oil market rebalancing after OPEC nations agreed to productions cuts. The OPEC report indicated that Saudi Arabia pumped the least oil since the cuts were agreed on. The commodity currencies seem to enjoy the recent strength in the oil futures markets – but we remain a focus as short-term transitory effects fade away.

    US DOLLAR

    The US Dollar Index touched a 5-month high buoyed by strong US Treasury yields. 10-year UST is up 3 basis points to around 3% to keep the G-10 currencies under pressure. There is a general belief in the markets that there will be an improvement in the frosty relationship between China and the US. Investors look forward to retail sales data for further trading direction.  

    BRITISH POUND

    The Pound is unable to match the USD strength, down 0.30% on the day. Data showed Britain’s wages rose by 2.6% as expected in March, but jobless claims jumped by 31.2K in April. We expect GBP/USD to remain soft as Brexit trade plan is expected to drag on.

    EURO

    The Euro is trading 0.4% lower vis-à-vis as Greenback incoming data failed to attract the Euro bulls. Industrial production came short of expectations. German ZEW Sentiment Indicator was at minus 8.2 points. Rising crude oil prices and further escalations of international trade conflicts is keeping the Germans awake at night. We expect the currency pair to trade with a negative bias today, after falling below key 1.19 levels.

    CANADIAN DOLLAR

    The Canadian Dollar is the only G-10 currency keeping its head above water this morning. We, however, expect the USD/CAD pair to move higher as uncertainty over NAFTA negotiations lingers on. Oil futures market is lending some support to the Loonie but we believe markets have a risk-off flavor and see further USD strength. 

    AUSTRALIAN DOLLAR

    The Aussie is at the bottom of the pile, down 0.35% against a resurgent USD. The RBA believes the current monetary policy is appropriate and they don’t see a “strong case” for a near-term adjustment in the cash rate. Investors will be watching for the wage price index set to be released later today.

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