The move higher in US rates appears to have boosted the USD, which strengthened across the board for the third day running. The Bloomberg DXY rose around 0.75% on the day, breaking out of the trading range it has been in since mid-January. Although it is still far too early to say, were the USD to “re-couple” with interest rate differentials, the USD has room to strengthen significantly from here.
The EUR has fallen to 1.22, with slightly stronger Eurozone and German PMIs not providing much support. In addition to the move higher in US interest rates, market positioning may be contributing to the USD strength / EUR weakness. CFTC data reported up to last Tuesday showed speculative investors added to net long EUR positions (to a new record), suggesting the market was vulnerable to a reversal (unwinding of speculative long EUR positions have probably exacerbated the moves in recent days).
The NZD has followed the broad USD move and moved down towards 0.7150, its lowest level since mid-January. Unwinds of speculative long positions in the NZD have also probably contributed to the NZD decline over the past week (the same CFTC data showed speculative investors added to NZD long positions last week, to near record levels). Meanwhile, the AUD fell to its lowest level this year, with the move lower in commodity prices overnight probably assisting the move. NZD/AUD is reasonably steady around 0.94.
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