In the currency markets on Friday (Feb. 12 EST), USD/JPY prices climbed out of the slump of the past three days, but still saw a slight downward trend in the North American trading session. The Australian dollar thus gained strong appreciation and is back above the $0.7750 price level again.
Yahoo Finance data on February 12 showed that the price of the U.S. dollar / Japanese yen (USD/JPY) fluctuated slightly after 00:00 on Friday (February 12 EST) near 104.80 yen, but from 2:40 began to rise strongly to 105.16 yen at 4:16 a.m.; but after that the dollar fluctuated around 105 yen and came out from 9:18 a.m. onwards A wave of falling market, but the decline was not deep, and finally closed at 104.922 yen, significantly lower than the closing price of 105.38 yen a week ago.
The dollar fell below 105 yen on Tuesday, but gained support at the 104.55 yen price level. Over the past three weeks, the dollar trend seems to have jumped above its downtrend channel, which should have an upper limit below ¥103. The recovery in USD/JPY prices on Friday should be attributed to the improving U.S. economic outlook and the pickup in U.S. Treasury yields.
The main reason that made USD/JPY prices climb out of the trough from last Tuesday to Wednesday was the rise in U.S. Treasury yields. The ten-year bond yield rose to 1.17% on Friday and finally closed at 1.20%, the highest since March 18 last year, compared to 1.157% and 1.133% last Tuesday and Wednesday, respectively.
Ten-year Treasury yields have surged 16 basis points (or 0.16%) in the nine trading days since 1.014% on Jan. 27; they fell to 1.133% on Wednesday due to profit-taking factors, but rebounded to 1.165% on Thursday. The strong Treasury yield quotes helped USD/JPY prices gain support and get solid.
The journey of the U.S. fiscal stimulus package through Congress has been one of the factors supporting the dollar’s strength, based on the premise that it will stimulate consumer spending in the fourth quarter regardless of the final size of the package’s funding. A delay in the stimulus package could be a drag on the dollar. Although the January non-farm payrolls data only added 49,000 as expected, the continued strong performance of the ADP report and the Purchasing Managers’ Index (PMI) has prompted expectations for the latest jobs report to rise.
The future trend of the USD/JPY price remains dependent on the pace of the U.S. economic recovery and will be influenced by U.S. Treasury yields. The Fed is buying back bonds to prevent a sharp rise in Treasury yields and to moderate their final yields, not to freeze them.
From the point of view of technical indicator analysis, USD/JPY price has been stuck above the upper limit of the falling channel of the dollar price. From the current trend, it is unlikely that the dollar will enter the downtrend channel again, but this depends on the improvement of the US economic data. The dollar has good support at its 21 SMA at the ¥104.50 price level and also at its 100-day SMA at the ¥104.40 price level.
The dollar will face challenges in the coming week. If the U.S. sales growth rate for January, scheduled for Wednesday, does not return to positive territory, then USD/JPY price momentum may be difficult to sustain.
Australian Dollar/U.S. Dollar (AUD/USD)
The Australian dollar/US dollar price (AUD/USD) came out of a roller coaster ride on Friday (Feb. 12 AEDT). At 00:00 on Friday the AUD was near the high price of $0.7770, but then began to oscillate lower, falling to $0.7721 by 19:35. After five hours of minor sideways fluctuations, the Australian dollar rebounded strongly and reached $0.7768 at 3:20 a.m. on Saturday. The Australian dollar price finally closed at $0.7762, significantly higher than the closing price of $0.7679 a week ago.
According to an analysis report by fxstreet.com, the main factor driving the AUD/USD price higher on Friday was the volatility of the US dollar, or the reversal of its strength against the yen after a strong performance in the Asia-Pacific and early European sessions.
Why did the dollar depreciate on Friday? There was no particular topic or news story that caused the dollar to depreciate. But the current global political and economic backdrop has fueled investors’ risk appetite. First, news about the Epidemic has been good (Israeli data show significant vaccine efficacy, and while the rollout continues, infection rates are declining); second, news about the U.S. fiscal stimulus package has been good (Senate Democrats are likely to bypass the committee markup stage, so the Biden cabinet will likely sign off on a stimulus package of up to $1.9 trillion as early as March 14). Third, the Fed continues to assure that the ultra-loose monetary policy stance will not change anytime soon, with Fed Chairman Jerome Powell and other policymakers taking a moderate stance on monetary policy last week.
As a result of the above, global equity markets continue to be at or near cycle highs or all-Time highs, metal futures remain supported, and indeed Crude Oil prices definitely ended the week’s trading with a punch higher in the upward channel. It was not a good environment for safe-haven currencies, which may go some way to explaining why the dollar underperformed. Treasuries sold off in U.S. and European markets on Friday due to a lack of demand for safe-haven currencies and higher Inflation expectations. The higher nominal yields on Treasuries did not help the dollar significantly, mainly because real yields barely rose, which is the real driver of bonds against the dollar.
Of the ten major non-dollar currencies, the Australian dollar was the second best performer on Friday and has been the best performer over the past week. The Australian dollar continues to draw support from the strong performance of base metals, iron ore and energy, as well as from the risk appetite in financial markets. Meanwhile, market sentiment was boosted by the Australian Federal Treasurer’s bullish comments on the Australian economy early last week.
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