The US dollar, which traded heavily throughout last week, turned better bid today. However, with no significant data, and the renewed pressure on European bonds, the greenback’s firmer tone looks fragile.
Core European bond yields are 3-4 bp higher, including German bunds. Peripheral bonds yields are up 8-11 bp, with Greek 10-year yields up 25 bp.
The high flying Antipodean currencies have also seen some profit-taking today. The Deputy Governor of the Reserve Bank of Australia talked down the Aussie, but also explicitly indicated that the rate lever has not been exhausted. The Aussie slipped through the pre-weekend low just below $0.8000. There is a large option struck there that expires today.
Meanwhile a new property tax in New Zealand to cool the market has taken a toll on the Kiwi. With today’s losses, it has shed two percent since reaching almost $0.7565 last Thursday. Speculation is mounting for an RBNZ rate cut as early as next month. The use of macro-prudential policy to curb the property market may be aimed at mitigate the impact of a rate cut on an over-heating sector.
The US dollar has traded higher against the yen but has remains below JPY120. A combination disappointing Japanese data and higher Treasury yields are doing the trick. Japan revised down March industrial production to -0.8% from the initial estimate of -0.3%. The March tertiary sector contracted by 1%. The consensus had expected a 0.5% fall. Both reports warn of the risk that tomorrow’s Q1 GDP estimate may disappoint the consensus 0.4% quarter-over-quarter expansion. The Nikkei closed above its 20-day moving average (~19763)for the first time here in May and has moved into the gap created by the sharply lower opening on April 30. The top of the gap comes in near 20032.
In Europe, the focus remains on Greece. A letter from the Greek government to the IMF ahead of last week’s repayment warned that it would not be able to make it has been leaked. On one hand, the fact that it made the payment illustrates the Greek government’s “game” of “crying wolf”. Many times over the last few months, the Greek government has said it is out of funds only to find them. It is partly a ploy to put more pressure on the creditors.
