US dollar slightly higher ahead of Fed

Summary:

• US dollar trades subtly higher against its major G10 peers this morning

• BoJ’s minutes suggest the bank should avoid a fixed view of no policy change

• South Korean leader Kim Jong Un is expected to make an announcement on nuke talks

Waiting for Fed

Morning’s trading is bringing modest gains in the US dollar as it is trading higher against all its major peers in the G10 basket in less than twelve hours before the Federal Reserve’s announcement. Taking into account that markets think the Fed is already done with rate hikes when it comes to this tightening cycle, one may suspect that the greenback could benefit this evening as US yields do as well. Notice that till the end of the year the market-based probability points to 25% odds to a rate cut. Let us recall that the latest dot-chart released in December indicated two rate increases this year followed by one rate hike in 2020. We think that this curve is likely to be revised down, however, we do not think that the Fed will scrap nay rate hikes for either this or next year. If this is the case, it could buoy the US dollar to some extent pushing bond prices lower at the same time (note that we have seen a big rally in bond prices since November, hence there is room to unwind this move).

Over Asian hours trading we got the balance of payments data from New Zealand showing a 3.256 billion NZD current account deficit in the last quarter of 2018, the number beat the consensus of a 3.55 billion deficit. However, it was not the case when we compare the current account deficit with GDP - the ratio deteriorated to 3.7% from 3.6%. In turn, the jobs market offered more encouraging numbers as job openings grew 0.9% MoM in February. The detailed data showed that a rise was seen in nine out of the ten industries as well as in six out of the eight occupation groups. The data did not help the kiwi at all. The NZ dollar is trading 0.25% lower this morning and is the worst performing major currency.

The NZDUSD is trying to bounce off the demand zone placed at around 0.6825. The major resistance in the short-term could be localized nearby 0.6870. Source: xStation5

BoJ publishes the minutes

The Bank of Japan released the minutes of January 22-23 meeting in which we got an interesting notion from one member. Namely the member said that it was undesirable to take a stance of not taking action until a serious crisis occurred (we did not get information who expressed such words). On top of that, one member said that it was necessary to emphasize a stance of taking “swift, flexible and decisive” policy actions, including additional monetary easing if needed. Other member added that it was necessary to oppose the view that there was a limit to monetary easing. As one may noticed there is no common stance shared by a majority of members with regard to the future course of monetary policy. The yen is trading 0.15% lower this morning and was little changed shortly after the minutes were released.

The USDJPY is bouncing off the short-term term support and the pair could visit the area nearby 112. Source: xStation5

In the other news:

• South Korea’s Kim Jong Un is expected to make an announcement on nuke talks

• Oil inventories fell 2.1 million barrels last week, according to API’s calculations