DXY rallies to a twelve year high

Wednesday, March 11, 2015

The dollar index rallied to a twelve year high after brushing off a shaky start to the week as it made steady gains, particularly against the euro and yen. Adding 0.8% throughout the session the DXY traded briefly above 98.80 before ending the session at 98.618 as investors continued to speculate over an impending interest rates rise as US macroeconomic data continued to strengthen the case for policymakers. Yesterday’s release of wholesale inventories, which increased 0.3% m/m in January against expectations of a -0.1% decline as well as an improving NFIB small business optimism index which rose modestly m/m to 98.0 in February signal towards a stronger US economic backdrop.

Both a stronger USD and economic data has increased the expectation of an interest rates rise in the near future with the bullish gains in the dollar index, which has seen the greenback add almost 4% against a basket of currencies since the start of the month, indicative of the current consensus. Owing to the stronger dollar both the S&P 500 and DJIA experienced heavy selling pressure throughout the day, closing 1.7% and 1.85% lower respectively.

Spot gold prices sank lower for the seventh straight session yesterday, extending the previous week’s significant losses after attempts to hold around Friday’s close at the start of the week. Prices traded within a wide range between $1,155-$1,170/oz throughout the session before the bears ultimately prevailed and sent the precious metal 0.46% lower at the close. A stronger dollar has contributed to a significant portion of the declines in the yellow metal, which has seen prices edge 4% lower since the start of the month and 11% lower since the year-to-date peak in January and with physical demand seasonally slow around this time of year we could see prices drop further towards recent lows around $1,130/oz before restocking in China offers some fundamental support.

Chinese data released early this morning pointed towards a further slowdown as industrial production, fixed asset investment and retail sales all came in short of expectations. Year-to-date retail sales were expected to accelerate by 11.6% y/y in February according to analysts polled by Bloomberg, however, growth was almost a percentage point lower at 10.7% y/y. Industrial production also came in well short of expectations, with year-to-date growth expanding by 6.8% y/y in February against expectations of a 7.7% y/y increase. Fixed asset investment rounded up the weaker than expected data releases with year-to-date figures growing by 13.9% y/y in February, lower than the 15% y/y growth rate expected by market participants in a clear sign that momentum had slowed substantially. The weaker than expected data could hit towards a potentially disappointing Q1 GDP reading as weaker construction activity and a flagging property market act as considerable drags to economic growth.

DXY rallies off of near term support around Monday's close

DXY Curncy DOLLAR INDEX SPOT 2015 03 11 07 24 59

Spot gold prices decline further as a stronger USD adds pressure

XAU Curncy Gold Spot Oz 2015 03 11 07 36 25

Events for today

0130

CN

Feb

Retail Sales

0130

CN

Feb

Industrial Production

0130

CN

Feb

Bloomberg GDP Monthly Estimate

0930

UK

Jan

Industrial Production

1500

UK

Feb

NIESR GDP Estimate

1530

US

w/e

EIA Energy Stocks

1800

US

Feb

Fed Budget

Topics: China, Gold, DXY
More from: Kash Kamal