TALKING POINTS – AUSSIE & NZ DOLLARS, YEN, STOCKS
- Aussie, NZ Dollars drop as Asia stocks follow Wall Street lower
- Yen sheds anti-risk bid as Fed rate hike bets weigh on funding FX
- Looming ECB policy decision may crimp risk-off follow-through
The sentiment-linked Australian and New Zealand Dollars underperformed as Asian bourses picked up on a negative lead from Wall Street. Regional shares shed 0.5 percent on average. The typically anti-risk Yen attempted a foray to the upside but failed to sustain momentum, trading broadly flat against its major currency counterparts.
The Japanese unit’s inability to capitalize may reflect the role worries about an accelerated Fed rate hike cycle in souring the markets’ mood. The Asia-session slump in risky assets was tellingly matched by a steepening of the spread between 10- and 2-year US bond yields. That may portend a broadly higher-rate environment ahead, boosting carry trade demand and weighing on standby funding currencies.
Looking ahead, a barebones offering of scheduled European and US event risk leaves markets rudderless, leaving sentiment trends to establish directional bearings once again. S&P 500 futures are pointing lower ahead of the opening bell in New York, hinting the risk-off bias has scope to carry forward. Conviction seems tepid however and follow might prove limited as the ECB rate decision looms on the horizon.