Dollar remains stuck in a tug-of-war of conflicting forces. On one side, extended decline in US Treasury yields is pressuring the greenback, while on the other, risk aversion is offering some support.
10-year Treasury yield fell to its lowest level since December, looks on track to test the next Fibonacci support at 4.2%. Bond markets appear to be betting on a downturn, reflecting growing fears that the US economy could be headed for a rough landing as the administration’s policies weigh on consumer confidence.
Meanwhile, risk aversion is pressuring US stock markets, indirectly giving Dollar some support as a safe-haven asset. S&P 500 closed lower for the fourth straight session, while NASDAQ shed -1% following weak consumer confidence data. The uncertainty surrounding tariffs, fiscal policy, and economic growth is amplifying recession fears, leading investors to seek refuge in bonds and defensive assets.
The key issue is that both declining yields and falling equities stem from the same core concerns—whether the US economy is losing steam faster than anticipated. Confidence in Washington’s economic policies is rapidly deteriorating. This dual pressure on stocks and yields is keeping markets on edge, with Dollar stuck between a weakening growth outlook and flight-to-safety flows.
Adding to the market’s cautious stance is Nvidia’s highly anticipated earnings report, set to be released Wednesday after the bell. Given the company’s pivotal role in the AI-driven stock market rally, its results could have significant implications for risk sentiment for the near term.
In the currency markets, European majors are leading the session, with Swiss Franc being the strongest, followed by Euro and Sterling. On the weaker side, commodity currencies are underperforming, with Loonie being the worst, followed by Aussie and Kiwi.
Technically, the case of near term reversal in 10-year yield is building up after strong break of 38.2% retracement of 3.603 to 4.809 at 4.348. Further break of 50% retracement at 4.206 will argue that fall from 4.809 is indeed another leg inside the medium term corrective pattern from 4.997. That would set up deeper decline to 61.8% retracement at 4.063 and below.
In Asia, at the time of writing, Nikkei is down -0.72%. Hong Kong HSI is up 3.03%. China Shanghai SSE is up 0.64%. Singapore Strait Times is down -0.18%. Japan 10-year JGB yield is down -0.0086 at 1.368. Overnight, DOW rose 0.37%. S&P 500 fell -0.47%. NASDAQ fell -1.35%. 10-year yield fell -0.095 to 4.298.
Australia’s monthly CPI holds at 2.5%, core measures edge higher
Australia’s monthly CPI was unchanged at 2.5% yoy in January, falling short of expectations for a slight uptick to 2.6%.
However, underlying inflation pressures showed signs of persistence, with CPI excluding volatile items and holiday travel rising from 2.7% yoy to 2.9% yoy. Trimmed mean CPI edged up from 2.7% yoy to 2.8% yoy.
These figures suggest that while headline inflation appears stable, core price pressures are still lingering, reinforcing RBA’s cautious stance on further easing.
The largest contributors to annual inflation included food and non-alcoholic beverages (+3.3% yoy), housing (+2.1% yoy), and alcohol and tobacco (+6.4% yoy).This was partly offset by a notable decline in electricity prices, which fell -11.5% yoy.
Fed’s Barkin: Staying modestly restrictive until inflation risks clear
Richmond Fed President Tom Barkin highlighted the need for a “modestly restrictive” monetary policy stance until there is greater confidence that inflation is firmly returning to the 2% target.
Speaking in a speech overnight, Barkin emphasized the importance of remaining “steadfast” in tackling inflation, warning that history has shown the risks of easing policy too soon.
“We learned in the ’70s that if you back off inflation too soon, you can allow it to reemerge. No one wants to pay that price,” he cautioned.
Barkin acknowledged the high level of uncertainty surrounding economic policy changes, geopolitical tensions, and natural disasters, all of which could influence inflation dynamics.
He noted that tariffs imposed during Donald Trump’s first administration in 2018 added about 30 basis points to inflation. However, he cautioned that the effect of the latest round of trade policies is harder to predict, as firms may either pass costs onto consumers or absorb them.
Beyond trade policies, Barkin also flagged uncertainties around deregulation, tax policies, government spending, and immigration reforms, all of which could shape labor market dynamics and broader economic conditions.
Given these unknowns, he prefers to “wait and see how this uncertainty plays out” before advocating any adjustments to monetary policy.
Looking ahead
German Gfk consumer climate and Swiss UBS economic expectations will be released in European session. Later in the day, US will release new home sales.
USD/CAD Daily Outlook
Daily Pivots: (S1) 1.4266; (P) 1.4293; (R1) 1.4345; More…
Intraday bias in USD/CAD stays neutral with focus turning to 1.4378 resistance as rebound from 1.4150 extends. Firm break there will suggest that the correction from 1.4791 has completed, and turn bias back to the upside for retesting 1.4791. On the downside, break of 1.4150 will target 1.3946 cluster support (61.8% retracement of 1.3418 to 1.4791 at 1.3942).
In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned support holds (2022 high), even in case of deep pullback.
