- Hawkish Fed commentary
- Fed Chair Yellen and Vice Chair Fischer
- Risk sentiment being supported for the time being
- Tech Development
The dollar rallied as Fed rhetoric came out sounding more hawkish. Notable commentary came from one of the more dovish members of the FOMC(Federal Open Market Committee) Fed Brainard(voter) who saw a hike soon to be appropriate and also expressed her view that foreign growth is steady. The futures markets started the week pricing in a 30% chance of a rate hike in March which has moved to 80% on the back of hawkish Fed commentary and strong US data.
All eyes will be on Fed Chair Yellen and Vice Chair Fischer who provide the last commentary before the blackout period leading into the 15 March meeting (Speaking at 5am AEDT-4/3/17) . If markets adopt a hawkish interpretation this should see US 2Y bond yields rise further adding to USD strength. Although a hike in March is virtually priced in there is an upside risk to the USD that more hikes will be priced into the curve over the next 2 years.
Trump’s address to the joint session of Congress lacked any specifics however high expectations remained allowing US equities to continue their rally. Risk sentiment is staying supported for the time being but if it does begin to fade and we do see a stronger USDcommodities may come under pressure. We position for this by looking to go short AUD,AUDUSD has broken key support levels (figure 3),against USD and CHF.
Figure 14H USDJPY (Source: Tradingview)
Figure 2 Daily USDCAD (Source: Tradingview)
Figure 34H AUDUSD (Source: Tradingview)
Figure 4 4H Nikkei 225 Futures (Source: Tradingview)