WP.. Good Morning, And so the range bound price action continues, with the USD marginally offered against the majors this morning. Humphrey Hawkins turned out to be somewhat of an anti-climax with Yellen testimony reinforcing the takeaway from the FOMC minutes, notably that the calendar-based “patient” guidance needs to come out in March and policy decisions should be made on a data-dependent, meeting-to-meeting basis.
There will also need to be some concrete indications in the incoming data supporting the Fed’s forecast for a return to 2% inflation in the medium termbefore they will be confident enough to start hiking rates. 10y yields dropped below 2% for the first time in over a week, and the DXY dropped below 94.50 support level. Main mover overnight was AUDUSD, trading up to a high of 0.7892, after stronger China PMI data (50.1). Ahead of the 0.79 resistance level there is plenty of supply from those looking to sell the rally ahead of tonight’s quarterly Private Capex report. While the initial focus will be on what is expected to be a weak Q4 print, we will also get the first estimate for 2015-2016. Our Australian economics team are looking for a number around the AUD 121bio mark.
Also of interest, will be the breakdown to see if there is any improvement in non-mining and non-manf capex given more than half of capex still comes from resources industries. On the charts, the 2015 trend line resistance was breached circa 0.7850, then the Feb high at 0.7877 was also taken out.
Elsewhere, USDCAD continues to be a source of frustration as neither a Yellen nor Poloz kicker was forthcoming. Poloz sounded very tentative on a further rate cut in March. The way the speech reads, it looks very likely that we see a pause at the next meeting, with rates market reacting accordingly with now less than 50% chance of a cut next week. Barring a complete collapse in CAD CPI later this week it looks increasingly likely that the BoC will act. Still like USDCAD longs, with the major risk point at 1.2350 support.