Dollar to Rise if Durables Data Reinforces Fed Taper Continuity

Talking Points:

• US Consumer Confidence Jump Inspires Risk-On Mood in Asian Trade
• New Zealand Dollar Leverages Rates Outlook to Outperform Overnight
• Upbeat Durable Goods Orders to Bolster Fed “Taper” Bets, Boost USD

The absence of significant headline event risk left currency markets in consolidation mode overnight. The New Zealand Dollar narrowly outperformed, rising as much as 0.2 percent on average against its leading counterparts. The move tracked a rally on Asian stock exchanges, hinting the currency was able to leverage its supportive monetary policy outlook to capture a broader swell in risk appetite.

The MSCI Asia Pacific regional benchmark equities index rose 0.6 percent on chipper overseas demand bets after the US Consumer Confidence index unexpectedly printed at a six-year high. The RBNZ is seen hiking interest rates by 120 basis points over the coming 12 months according to a measure of priced-in expectations tracked by Credit Suisse, making the most attractive profile for yield-seeking investors in the G10 FX space.

An uneventful data docket in European trading hours is likely to see traders looking ahead February’s US Durable Goods Orders report. Expectations point to a 0.8 percent increase, which would amount to the largest increase in three months. A supportive outcome is likely to further erode doubts about continued “tapering” of Fed QE asset purchases in the months ahead, bolstering the US Dollar. We have entered long USDCAD.