BOJ Holds Rates Steady, While Fed Ponders Two More Rate Hikes

The U.S. Dollar broke out of a nine-week range against a basket of currencies and even moved higher for the year before pulling back into Friday’s close. Nonetheless, the Greenback was able to post its strongest weekly performance since November 2016.

For the week, June U.S. Dollar Index futures settled at 91.343, up 1.268 or +1.41%.

U.S. Dollar Index
Weekly June U.S. Dollar Index

The primary catalyst behind the dollar’s rally was a sharp rise in U.S. Treasury yields. On Tuesday, the U.S. benchmark 10-year U.S. Treasury note yield broke through the psychologically significant 3-percent level for the first time in more than four years as investors reduced their U.S. bond holdings on worries about rising inflation and growing government debt supply.

In other news, according to the Conference Board, Consumer Confidence rose to 128.7, beating expectations. Durable Goods Orders came in at 2.6%, below the previous read, but better than the estimate. Core Durable Goods Orders came in flat at 0.0%, below the estimate. Advance GDP also beat the forecast with a 2.3% read. However, economists were still concerned about low consumer spending.

Most of the price action in the other major currency markets was driven by the contrast between the hawkish U.S. Federal Reserve and other dovish central banks.


Weekly AUD/USD

Australia Dollar

The Australian Dollar tumbled against the U.S. Dollar as the spread between U.S. Treasury yields and Australian Government Bonds tighten. The Fed is likely to raise rates two or three times this year while the Reserve Bank of Australia seems to be in no hurry to raise rates.

The AUD/USD settled at .7579, down 0.0090 or -1.17%.

A report last week on Australian inflation offered mixed results. Consumer inflation came in below expectations at 0.4% versus a 0.5% estimate and 0.6% previous read. Trimmed Mean CPI was 0.5%. If matched the forecast, while coming in better than the previous quarter.

Weekly NZD/USD

New Zealand Dollar

The New Zealand Dollar also plunged last week in reaction to the surge in U.S. Treasury yields and expectations of further rate hikes by the Fed. The tightening of the interest rate differential between U.S. Government Bonds and New Zealand Government Bonds made the U.S. Dollar a more attractive investment.

The NZD/USD settled at .7084, down 0.0121 or -1.67%.

The New Zealand trade balance came in at -86 million. Traders were looking for a 270 million increase. The previous month was revised down to 172 million.

Weekly USD/JPY

Japanese Yen

The widening of the spread between U.S. Government Bonds and Japanese Government Bonds (JGBs) also made the dollar a more attractive investment. Buyers were also influenced by an easing of geopolitical tensions which diminished the need for investment in safe-haven currencies like the Japanese Yen. The Dollar/Yen rose to its highest level since February 8.

The USD/JPY settled at 109.045, up 1.422 or +1.32%.

In other news, the Bank of Japan kept monetary policy steady and removed a phrase of the time frame for achieving its 2 percent inflation target, suggesting it is no rush to reach its elusive price goal with the economy in good shape.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.