Dollar Index Seven-Day Advance Is The Longest In Two Years

Overview: As North American traders return to their posts to put the finishing touches on the week's activity, the Dollar Index is extending its advance for a seventh consecutive session. If sustained, it will be the longest advance since February 2017. The rally was sparked after the dovish FOMC statement had sent the greenback lower and the employment data raised the possibility that the Fed overreacted to the stock market volatility. The S&P 500 turned back from the 200-day moving average and gapped lower yesterday (~2719-2724) setting the tone for the still holiday-thinned Asian markets, where the MSCI Asia Pacific Index fell for a third session, to snap a four-week rally. European shares are faring better, and Dow Jones Stoxx 600 is poised to extend its streak for the sixth week. Benchmark 10-year bond yields are mostly a little lower. Oil is trading heavily, and with WTI for March delivery near $52.40, it is off more than 5% this week, the largest decline since late December. On the other hand, the shock from Vale is still behind iron ore's surge. Today's 5% rally bring it to a five year high.  

Asia Pacific

When the Reserve Bank of Australia left rates on hold and did not appear to change its stance much the Australian dollar traded firm, but subsequent "clarification" has seen the Aussie tumble. Governor Lowe's neutral bias was quantified in today's Monetary Policy Statement. Growth and inflation forecast were cut. The Australian economy is expected to grow 2.5% in the year through June, down from 3.25% previously. And growth in the following year was cut by half a percentage point to 2.75%. The softer inflation forecast was attributed to oil, with core inflation remaining near 2%.  The forecasts would suggest an easing bias rather than a neutral stance that Lowe claims. Yet, the RBA still seems to be counting on the strength the job growth to boost wages and inflation. The underlying issue is whether the weakness in property prices will crimp consumption and growth. Australia's 10-year bond yield fell 13 bp this week to 2.10%. The record low was set in August 2016 near 1.80%.  

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Read more by Marc on his site Marc to Market.

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