Quite a move in the USD today – first weaker and then stronger. One might expect that this is simply some profit-taking ahead of the Nonfarm payrolls report tomorrow. Our models are sending mixed signals on where the USD should be.
Chart: Saxo Bank Carry Trade Model
No huge changes here to what we showed yesterday. Risk measures are generally slightly positive except for FX volatility, where the spike in currencies is causing an aggravated move now in FX implied vols – a general drag on risk appetite and not supportive (at least in the past) of the move in the USD, if we are to expect the USD/risk appetite correlation to resume. Data source for the model is Bloomberg.
Interest rate spreads
Interest rate spreads, today's move notwithstanding, are more supportive of the weak USD environment here. We'll need to see firmer US rates relative to the rest of the world (or for the rest of the world's rate to fall against the US) to see support for a stronger USD from here.
Interest rate spreads, today's move notwithstanding, are more supportive of the weak USD environment here. We'll need to see firmer US rates relative to the rest of the world (or for the rest of the world's rate to fall against the US) to see support for a stronger USD from here.
Chart: AUDUSD vs. 2-year rate spreads
AUD spreads went back wider to the highest levels of the cycle versus the USD after the very strong Australian employment data – not necessarily in support of the day’s fairly sharp correction in AUDUSD lower. Data source: Bloomberg.
Chart: AUDUSD vs. MSCI emerging markets
Anyone see a slight correlation here? It’s the same trade….correlation across markets in some cases is almost frightening. Data source: Bloomberg.
Chart: EURUSD vs. 2-year rate spreads
Spreads are wider on European again after the ECB meeting today as Ever-tight Trichet gave not the faintest hint that the ECB Is looking to loosen up policy. Note that spreads are actually far higher than they were when EURUSD was trading at 1.51 late last year – providing theoretically support for even higher levels were it not for the nagging issue of PIGS debt spreads. Data source: Bloomberg.
Chart: USDJPY rate spreads resume downward trend
US 2-year rates traded below 36 bps today, while Japanese rates are at 13 bps - this spread can hardly decline more than another 23 bps, but then the market may begin to look farther out the curve if the Fed move forward with QE. The 10-year US-Japan rate spread is still around 150 bps. Data source: Bloomberg.
No comments:
Post a Comment