US Dollar, DXY Index, Treasury Yields, Recession Fears, Chinese Loan Prime Rates – Asia Pacific Market Open
- US Dollar weakens as Treasury yields fall on rising recession woes
- Markets are slowly parring back 2023 Federal Reserve rate hike bets
- Ahead, AUD/USD is eyeing Chinese loan prime rates for next move
Thursday’s Market Recap – US Dollar Weakens With Treasury Yields
The US Dollar underperformed on Thursday, weakening against all of its major counterparts. This was despite a rather quiet day in terms of economic event risk. On Wall Street, it was also quiet. S&P 500 futures weakened but fell only 0.64%, which was much smaller than the nearly 4% drawdown in the previous session.
There might have been a culprit if you looked at government bonds. On the intraday chart below, the DXY US Dollar Index can be seen weakening alongside a slide in the 10-year Treasury yield. There was a similar disappointment looking at front-end rates. Yet, global stock markets were quiet all things considered. So, it did not seem like traders were seeking safety from risk aversion.
Rather, it seems that markets are getting increasingly concerned about a recession in the United States next year. This can be seen by looking at Fed Funds Futures. As the S&P 500 slipped this year, investors increasingly pulled back 2023 Fed rate hike bets despite still-strong current inflation. A combination of a hawkish Fed and risk aversion have been benefitting the Greenback this year.
Looking at Google Trends, there is rising search interest for the term ‘recession’ as of late. While still not as popular as ‘inflation’, the gap has been narrowing. With that in mind, it makes sense that the US Dollar weakened overnight as markets cut back on a more hawkish Federal Reserve next year. Unsurprisingly, the combination of falling yields and a weaker US Dollar bolstered gold prices.
Key Market Performance – US Dollar, Treasury Yields, S&P 500 Futures, AUD/USD
Friday’s Asia Pacific Trading Session – Chinese Loan Prime Rates
With that in mind, Asia-Pacific markets could see a rather mixed session. All eyes will be on Chinese loan prime rate data. Cuts are expected to 3.65% and 4.55% from 3.70% and 4.60% for the 1-year and 5-year rates respectively as the nation tries to alleviate economic pain from a zero-Covid policy. An unexpected hold could leave the Australian Dollar at risk. China is Australia’s largest trading partner, so economic conditions in the former often make their way into the latter.
US Dollar Technical Analysis
The DXY US Dollar Index closed under the 20-day Simple Moving Average (SMA). Further downside confirmation could hint at more pain to come. This could come from taking out immediate support, which seems to be the 23.6% Fibonacci retracement level at 102.55. Such an outcome exposes the 50-period SMA. Uptrend resumption entails breaching the early May high at 105.005.
DXY Index Daily Chart
Chart Created in TradingView
— Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter