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The US Dollar Gripped the Ascendency as Risks of Recession Swirl. Will USD go Higher?


US Dollar, USD, DXY INDEX, Treasuries, Curve, Crude Oil, AUD/USD, GDP – Talking Points

  • The US Dollar resumed strengthening and has consolidated so far today
  • There appears to be a growing chorus of trepidation for growth next year
  • China re-opens, will that change the course of the DXY (USD) Index?

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The US Dollar has maintained the high ground so far today after the market re-assessed the commercial prospects for 2023.

Wall Street finished its cash session deep in the red with the Nasdaq registering a 2% decline. Risk appetite was soured after several leading bankers sounded a note of caution across several media outlets of the economic conditions going forward.

They were led by financial sector heavyweights Goldman Sachs Chairman and CEO David Solomon as well as JP Morgan and Chase Co’s Chairman and CEO Jamie Dimon. They both said that they see a recession in 2023.

The US trade deficit was slightly better than forecast at USD -78.2 billion in October. It widened from USD -73.2 billion, and this has been attributed to the impact of a stronger US Dollar.

Treasury yields eased slightly across all maturities but more so at the back end of the curve. The 2s 10s inversion continues to sink, touching -0.838% today. This inversion has historically been a harbinger of a recession.

APAC equities were overall fairly soft despite China indicating a shift away from a zero-case Covid-19 policy. It is being reported that the government will allow for home quarantine and a relaxing of the testing standards.

The Australian Dollar failed to hold on to gains after third-quarter GDP missed estimates of 0.7% QoQ to print at 0.6%, below 0.9% previously. Annual GDP to the end of July was 5.9% instead of the 6.3% anticipated and against the prior read of 3.6% which was revised lower to 3.2%.

Crude oil suffered at the hands of the stronger US Dollar with the WTI futures contract down near US$ 74 bbl while the Brent contract is under US$79.50 bbl.

Gold seemed to avoid the brouhaha with the precious metal holding above US$ 1,770 at the time of going to print.

After Eurozone GDP today, the Bank of Canada will decide on rates. A Bloomberg survey of economists anticipates a 50 basis point hike to 4.25%.

The full economic calendar can be viewed here.

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