The post-election trade in the dollar hasn’t been too straightforward over the last two days to say the least. The greenback saw gains abate yesterday but is looking to recover back some ground again in trading today. But even then, it isn’t that convincing with the dollar lagging against the yen and franc on the day.
The former owes to lower Treasury yields, with 10-year yields dipping back by another 4 bps to 4.30% currently. It’s still at a high point compared to where we were before October but on the week itself, yields are pretty much flat now. So, that is also one reason why the dollar has struggled to follow through with gains.
But as a whole today, dollar bulls are looking to test the waters again. EUR/USD is down 0.3% to 1.0770 though large option expiries are also in play, potentially boxing in price action for now. Meanwhile, GBP/USD is down 0.3% to 1.2950 and USD/CAD up 0.3% to 1.3895 currently.
The laggards are the antipodeans and that owes to softer sentiment surrounding China as well. AUD/USD is down 0.6% to 0.6635 with sellers looking to make a play again on the technical side of things:
AUD/USD daily chart
The rebound yesterday fell just short of contesting the 100-day moving average (red line). And sellers are now driving price back lower to test the 200-day moving average (blue line) at 0.6628. Break back below that and the bias in the pair will return to being more bearish once again.
As much as Trump’s election win has reignited the dollar flames again, a lot will also depend on bond market developments.
So far, traders are not really extending the higher jump in yields since October. And that is keeping the dollar at bay from rampaging across the board. But perhaps there is a case that we might be settling into a new regime of higher US yields from here.
And if so, that will allow the dollar to flex its muscles later on once traders get settled in. That especially if Trump’s policies are going to lead to higher domestic inflation while impacting growth outlooks in other countries.
It’s still only two days into the post-election window. There’s going to be much more for traders to digest and take into consideration in the months ahead. So, I guess it’s also a good thing that markets are not getting too carried away just yet.