Dollar Bid on Turnaround Tuesday

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  • The dollar is benefitting from a Turnaround Tuesday
  • US interest rates are not really part of the narrative
  • RBA left policy unchanged, as expected
  • The New Zealand government will reportedly study giving the RBNZ a new dual mandate and decision-making by committee
  • Taiwan is back to deflation; Chile reports October CPI

The dollar is broadly firmer against the majors on Turnaround Tuesday. Swissie and sterling are outperforming, while the Aussie and Stockie are underperforming. EM currencies are mostly softer. RUB and KRW are outperforming, while TRY and ZAR are underperforming. MSCI Asia Pacific was up 0.9%, with the Nikkei rising 1.7% to levels not seen since 1992. MSCI EM is up 0.5%, with the Shanghai Composite rising 0.8%. Euro Stoxx 600 is flat near midday, while S&P futures are pointing to a lower open. The 10-year US yield is up 1 bp at 2.33%. Commodity prices are mostly lower, with Brent oil down 0.3%, copper down 1%, and gold down 0.4%.

The dollar is benefitting from a Turnaround Tuesday. After trading heavily on Monday, the euro continues to slide and is trading at levels not seen since July 20. Charts now point to a test of the July low near $1.1315, though some intermediate support may be seen in the $1.14 area. Elsewhere, USD/JPY is recovering smartly after the market was unable to push through yesterday’s low near 113.70. The pair is back above 114 and likely to challenge the cycle high near 114.75.

US interest rates are not really part of the narrative today. The 2-year yield is flat at 1.62%, as is its spread to Germany at 238 bp. The 10-year yield is up marginally by 1 bp to 2.33%. The Fed’s Quarles and Yellen appear later today, but the US data calendar is light (September JOLTS jobs openings and consumer credit).

Germany September IP was reported. Data was weaker than expected at -1.6% m/m vs. -0.9% consensus. On the other hand, eurozone September retail sales were slightly firmer than expected, rising 0.7% m/m vs. 0.6% consensus. With the ECB just laying out its plans for tapering QE, the data are unlikely to have any material impact on policymaking near-term.

China’s monthly data deluge began overnight with its report of October foreign reserves. They rose a tick to $3.109 vs. $3.110 bln consensus. It was the ninth straight monthly gain, reflecting in part capital controls that are meant to curb outflows. China then reports October trade Wednesday, where exports are expected to rise 7% y/y and imports by 17% y/y. China then reports October CPI and PPI Thursday. The former is expected to rise 1.8% y/y and the latter by 6.6% y/y.

RBA left policy unchanged, as expected. Its growth and inflation targets were left pretty much unchanged as well. Whilst sounding fairly upbeat about the outlook for investment, the RBA saw uncertainty with regards to household consumption. The bank also noted that underlying inflation was likely to remain low. All said, the decision points to steady rates for the time being.

RBNZ meets Thursday (Wednesday afternoon North American time). It too is widely expected to keep rates steady at 1.75%. Of more interest are reports that the government will review the Reserve Bank Act, which may lead to a new dual mandate and decision-making by committee. Finance Minister Robertson stressed that RBNZ independence will be preserved, and that the current 1-3% inflation target will be kept. However, he noted that the 2014 rate hikes might not have occurred under a dual mandate. As such, the news is ostensibly dovish and NZD-negative at the margin.

Taiwan October CPI fell -0.3% y/y vs. a gain of 0.2% expected and 0.5% in September. This is the first deflationary reading since August2015. The central bank does not have an explicit inflation target, but the lack of any inflation gives it leeway to keep rates on hold well into 2018. Taiwan also reported weaker than expected October trade, as exports rose only 3% y/y and imports were flat y/y. Export orders have slowed a bit in recent months, and so exports bear watching.

Chile reports October trade. It then reports October CPI Wednesday, which is expected to rise 1.6% y/y vs. 1.5% in September. If so, inflation would still be in the bottom half of the 2-4% target range. The central bank has signaled that the easing cycle is over. However, low inflation gives it leeway to cut again if the economic outlook worsens.