FX Markets Await Yellen

It has been a quiet start to the week, but the markets should pick up with Fed Chair Yellen’s semi-annual testimony before Congress. While the Feds have been taking a back seat of late to Fiscal and Tax banter, Dr. Yellen returns to the spotlight this evening, and as usual, the market is sitting on pins and needles.

While there is tremendous uncertainty over the new US administration policies, I expect her to hold the FOMC cards close to the chest and to avoid any explicit jawbone to a March rate hike. Guidance will be sufficient to tighten up market interest rate expectations, and we could see the dollar punch higher.

Australian Dollar The AUD was a bit of a drifter overnight as any upward momentum was sapped by concerns of a hawkish Yellen testimony. The stronger US tempered base and precious metals prices, and despite another bump in iron ore prices, interest remained muted ahead of Dr. Yellen’s appearance.

Overall, price action is very much reflective of last week’s neutral RBA. The current technical trading edges remain very much intact. There is strong resistance between 77- 7750, while the .7500 offers major support.

New Zealand Dollar The NZD, on the other hand, continued to roll over after the RBNZ statements last week, and all but wrong-footed traders with a neutral interest rate outlook.

Japanese YenMarket optimism over the Trump-Abe talks continues to hold, but the lack of a convincing follow-through above saw profit taking quickly out of the market. The feel-good factor remains intact, with the market leaning for a hawkish Dr. Yellen. Dollar dips should remain well supported today.

Chinese YuanYuan tracked the JPY lower, undermined by concerns about a hawkish Yellen speech and US tax reform. Risk points lower for the yuan as the markets reprice US tax reform.

Expect external drivers to be the dominant force ahead of China’s annual parliamentary session in March. Mainland policymakers seldom if ever rock the boat ahead of major events. PBOC has resumed open market operations.

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