FX Daily: Taking a pause to reassess recent moves

Rallies in AUD, NZD and GBP near or hit resistances
Philip Wee20 Oct 2021
    Photo credit: Unsplash Photo

    DXY found support at 93.5 during the late European session and recovered to 93.8 by the end of the overnight session. Support for the USD came from a rebound in the US 10-year treasury yield from 1.567% to 1.637% around the same time. Strong US corporate earnings propelled S&P 500 for a fifth session by 0.7% to 4520 on Tuesday. With the index close to its record close of 4537 on 2 September, Fed officials were more concerned about high inflation over the medium-term than slower growth in the short-term. Fed Governor Christopher Waller warned that the Fed would need “a more aggressive policy response” if inflation becomes persistent instead of transitory next year. If the Fed’s Beige Book report today concurs with Waller, the market will need to reconsider if it was too quick in reining the USD after the second miss in the US nonfarm payrolls earlier this month.

    AUD appreciated to 0.7474 on Tuesday which effectively retraced last month’s sell-off to 0.7176 on 29 September. NZD did the same when it recovered from 0.6869 to 0.7154 during the same period. Both currencies are starting to look expensive. Their 14-day RSIs are close to the oversold 70 levels and have exceeded their last highs just before the September sell-off. According to our model, NZD’s upside appears more limited because it is near 2 standard deviations from its mean trend value than less than 1 standard deviation in the AUD. The Reserve Bank of New Zealand might push back against market expectations for an aggressive 50 bps rate hike at its next meeting on 24 November. Tomorrow, Reserve Bank of Australia Governor Philip Lowe will likely maintain the same dovish tone in yesterday’s October minutes. The critical psychological resistances remain at 0.75 and 0.72 for the AUD and NZD respectively. 

    GBP appreciated but failed to close above 1.3810 or its 100-day moving average. Tuesday’s high at 1.3835 was close to the ceiling of a descending price channel. The FTSE 100 index underperformed again and did not deviate far from the year’s high around 7200. The market has priced in two rate hikes that will take the Bank of England’s bank rate from 0.10% to 0.50% by end-year. However, the market is aware that the BOE monetary policy committee is divided between the doves and the hawks. Today, consensus is looking for UK CPI inflation to stay unchanged at 3.2% YoY in September, and core inflation to ease to 3.0% from 3.1% in August. Not quite the stampede to 4% by end-2021 expected by the central bank. Apart from potential rate hikes, investors are not looking forward to possible higher taxes at the upcoming Budget announcement on 27 October. Not surprisingly, the median forecast for UK’s 3Q growth by Bloomberg dropped sharply to 1.5% QoQ sa from 2.25% only a week ago.


    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]

    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

    The information herein is published by DBS Bank Ltd. It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

    DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong SAR Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    The information set out in this website ("Information") is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. This Information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. This Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.