Intraday Market Thoughts

Bonds Keep Dollar Bid, But For How Long?

by Adam Button
Mar 21, 2012 1:26

US yields rose for a record tenth consecutive day, underpinning the US dollar, but the rally may be due for a break. The Australian dollar lagged Tuesday on worries about a China slowdown. Asia-Pacific trading is quiet but the Feds Kocherlakota hinted at an exit strategy.

The ten-session rise in US yields is the most since at least 1985 and underlines sentiment about the US recovery but the climb fell short of the late-October high of 3.42%. At the same time, USD/JPY has been unable to definitively break above 84.00. Japanese fiscal year-end is often a negative for the pair and a small move down is likely before a further rally, unless yields break out.

News flow was light in US trading. Housing starts were a minor disappointment at -1.1% compared to the +0.1% expected but building permits were strong. The theme of worries about a China slowdown carried over from Asia and percolated, especially in early trading. Comments from Bernanke were academic.

The lone indicator in the Asia-Pacific region was New Zealands current account and it was virtually in-line with estimates at -$2.76B. The Feds Kocherlakota said that if necessary, the Fed could contain inflation by hiking interest paid on reserves, in a hint at the FOMCs exit strategy. He said officials could move away from zero interest rate policy as soon as 2012 or 2013 if conditions permit.

One EURUSD trade is in progress, the other is unfilled, while AUDCAD & AUDUSD were both done. Rest of last night's Pemium Intermarket trades are found here: Nonsubscribers click here:


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