Dollar remains on the back foot ahead of European trading

Author: Justin Low | Category: News

The greenback and the yen are leading losses on the day

This is very much a continuation of the moves we saw overnight and the improvement in risk sentiment seen in Asian equities is helping to weigh the the yen and the dollar down while keeping the aussie and kiwi bid ahead of European markets open.

The two commodity currencies also got a helping hand from better data (Australia consumer confidence and NZ retail card spending) but it's more to do with sentiment and positioning right now for both currencies against the dollar.

For AUD/USD, the steady track lower in the past week failed to move towards a a test of the 0.7000 handle and a bout of profit taking is something to factor in as short positions continue to look stretched in the pair.

With Treasury yields also flat on the day so far, it's making for little worries in the equities space to start the day. Given time to digest, equities should hold steady if yields aren't in a rush to break higher. Also, earnings season couldn't come at a better time for stocks and if they are to beat expectations again it will provide a good reprieve for equity investors.

With the Fed still tightening and other central banks are starting to follow suit (ECB next year and BOJ already allowing higher JGB yields), there is little doubt that Treasury yields will continue to see an uptrend moving forward. But as long as it is a slow and steady one with pauses in between, it shouldn't spook off global equities all too much.

The real pain will be felt by emerging markets and that is something that will help underpin the dollar in the medium-term outlook.

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