US Dollar and Japanese Yen May Rise on Fed, Treasury Sniping

US DOLLAR, JAPANESE YEN, FED, TREASURY, COVID – TALKING POINTS:

  • Cautious risk-on tilt in APAC trade offers slight lift to Aussie, NZ Dollars
  • US Treasury Dept, Federal Reserve bicker over unspent stimulus funding
  • Japanese Yen, US Dollar likely to rise if risk appetite begins to sour anew

A cautious risk-on tone prevailed in quiet Asia-Pacific trading hours. Regional shares added about 0.4 percent, pulling the sentiment-sensitive Australian and New Zealand Dollars modestly higher. At the other end of the G10 FX spectrum, the anti-risk US Dollar and Japanese Yen edged downward.

On the economic data front, November’s Japanese PMI surveys showed the manufacturing- and service-sector economic activity shrank for a tenth consecutive month. The pace of contraction accelerated from the prior month, marking the first deterioration in relative conditions since April.

Chart created with TradingView

Looking ahead, a bare-bones offering on the data docket seems likely to keep sentiment trends at the forefront. A defensive mood may prevail in the final hours of the trading week as markets weigh an emerging spat between the US Treasury Department and the Federal Reserve.

US Treasury Secretary Mnuchin drew the central bank’s ire with a move to reclaim unspent funds from the Fed’s emergency lending program established in the early stages of the Covid-19 outbreak. He would like to spend the money on fiscal stimulus while Congressional negotiations on more aid are deadlocked.

For its part, the central bank resisted. In a statement released after Mr Mnuchin made his overture for the funds’ return, it said that it “would prefer that the full suite of emergency facilities…continue to serve their important role as a backstop for our still-trained and vulnerable economy.”

Markets may shudder at such sniping at a time when an upswell in coronavirus cases has triggered another wave of lockdown measures of varying severity across much of the US. The appearance of discord in policymakers’ response may spook investors and inspire liquidation, lifting USD and JPY.

FX TRADING RESOURCES

— Written by Ilya Spivak, Head Strategist, APAC at DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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