CNH vs DXY & RBA Cuts Down Yields

Central banks will be under pressure to respond to rising yields this week and the RBA kicked it off by doubling its daily bond purchases, dropping the 10-year by 30 basis points. Last week, the US dollar was the top performer, but today it's mixed, as AUD, CAD and NZD lead the flows. CFTC positioning showed some speculative love for the pound. Ashraf lays out 3 charts below that will increasingly rule the FX order in the months to come--especially in USD-pairs. Get your eyes to habituate themselves looking at them. 

 

To start the week, the RBA announced it was buying A$4 billion in the 4 to 8-year range. The current target rate of purchases is $5B/week and the aim is to keep 3-year yields at 0.10%.

Last week though, 10-year yields spiked to 1.92%, including a 20bps move higher on Friday.

The actions from the RBA are an early sign that central banks aren't pleased with the jump in yields and the market responded as yields fell 30 bps to 1.64% in early-week trading.

Global central banks are undoubtedly displeased with the US bond market. The talk from the Fed that they're ok with higher yields along with the quick US vaccine rollout and huge fiscal stimulus is spilling over globally.

The Fed can either change its tune, or double down. If they offer some verbal intervention, it would undo some of the recent market moves. If they double down, the relief valve may be US dollar strength as the Fed stays the course and other countries ramp up easing.

With that, all eyes will be on a series of Fed speeches this week, culminating with Powell on Thursday. To start the week, Williams and Brainard are on tap. Their comments will be watched closely.