Dollar on a Tear; Hits 8 Month HIghs

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Market Drivers May 9, 2017
USDJPY at 8-month highs
AU Retail Sales miss
Nikkei -0.26% Dax 0.48%
Oil $46/bbl
Gold $1225/oz.

Europe and Asia:
AU Retail Sales -0.1% vs. 0.3%
EUR GE IP -0.4% vs. 0.6%

North America:
CAD Building Permits 8:15
USD JOLTs 10:00
USD Ecnomomic Optimism 10:00

The dollar was on a tear today in Asian and early European trade today, hitting 8 month highs against the yen at it broke above the 113.70 level.

Traders remain optimistic about the prospects for the US economy and the Fed’s hawkish posture as the path towards monetary normalization is likely to continue increasing US rates making the dollar more and more attractive on a yield basis. On the other hand news our Japan indicates that despite BOJ’s best efforts to reflate the economy serious challenges remain for Kuroda and company. Today the Japanese authorities reported that real wages have slowed to a two year low dropping -0.8% versus a forecast of 0.5% rise.

The decline in real wages a serious setback to Governor Kuroda’s program of intense monetary easing ad will likely delay his goal of achieving 2% inflation rate. Japanese authorities now target 2018 rather than this year as the timeline for their target, but given the latest wage data results even that date may be optimistic.

The combination of continued monetary easing in Japan and expected tightening in US has been a key driver of flows in USDJPY this week and the pair has now climbed within striking distance of the key 114.00 level.

Meanwhile in Oz, the Australian dollar came under heavy selling pressure after Retail Sales sorely disappointed the marker printing at -0.1% vs. 0.3% eyed. The decline was broad based with declines in food retailing, department stores and household goods retailing. This is the fourth month out of the last five that Retail Sales have missed their forecast indicating that the consumer is retrenching. Such weak demand could quickly become a concern for the RBA if it begins to affect the broader economy. So far business demand has not shown any material weakness and AU GDP growth remains on track. Nevertheless, this is clearly a troubling sign and currency markets are becoming concerned that the RBA may once again resume its easing bias. AUD/USD drifted below the .7350 mark as the night wore on and could test the key .7300 support in North American trade.

In US today the calendar is very quiet with only JOLTs and Consumer confidence on the docket. The market remains very bullish dollars and the rally could extend especially against the yen as bulls will try to run the 114.00 as the day proceeds. That, could squeeze out the last of the USDJPY shorts as the pair continues its V shaped bounce from two week ago.

Boris Schlossberg
Managing Director

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