A man walks past various currency signs, including the dollar (top R), Australian dollar (top L), pound sterling (centre L) and euro (bottom L), outside a brokerage in Tokyo October 28 2014.
A man walks past various currency signs, including the dollar (top R), Australian dollar (top L), pound sterling (centre L) and euro (bottom L), outside a brokerage in Tokyo October 28 2014. A year-long investigation into allegations of collusion and manipulation by global currency traders is set to come to a head on Wednesday, with Britain's financial regulator and six big banks expected to agree a settlement involving around ?1.5 billion ($2.38 billion) in fines. The settlement comes amid a revival of long-dormant volatility on the foreign exchanges, where a steady rise of U.S. dollar this year has depressed oil prices and the currencies of many commodity exporters such as Russia's rouble, Brazil's real and Nigeria's naira - setting the scene for more turbulence on world financial markets in 2015. Picture taken October 28, 2014. Reuters/Yuya Shino

Bell FX Currency Outlook: The Australian Dollar has hit a 4- week high as the USD continues to edge lower, reflecting the consensus that Fed Chair Yellen’s testimony has pushed back the time at which the Fed begins to raise rates.

Australia: Markets generally consolidated overnight following US Federal Reserve Chair Janet Yellen’s semi-annual testimony on Tuesday. US equities and Treasuries finished the session little changed, with the former in reach of all-time record highs. European stocks weakened slightly on some disappointing corporate earnings results. Oil prices received a boost after Saudi Arabia’s Oil Minister Al-Naimi stated oil demand has picked up and the world’s largest oil exporter wanted to see “calm markets”. Commodity prices were mixed but iron ore and thermal coal declined. So the main issue for our AUD remains the Fed. The market is not indicating anything too dovish in Yellen’s testimony, moreover, it seems clear the Fed has given itself more flexibility than before and US data will paint the picture. The AUD and NZD have broken key resistance levels of USD 0.7850 and USD 0.7500 respectively, with the AUD’s break significant, having struggled to break through previous resistance levels throughout February. This technical move has also been supported by positive data with Australia’s construction work down fell by significantly less than the market had expected. This feeds into Australia’s GDP (due next week), and has analysts revising forecasts higher. Today’s Q4 capex report is relevant for next week's GDP data also. Greater interest lies in the updated (5th) estimate for full year 2014-15 capex where the market is looking for a number ~ A$110bn (A$15bn lower than the first estimate for 2014-15). Note, it will be the strength or otherwise in non-mining capex that should have the most bearing on RBA policy thinking.

Majors: As stated earlier, the USD continues to edge lower. Global bond yields generally fell overnight. Yields on 10-year bonds in Europe fell in France, Germany and the UK, but were unchanged in Spain and Italy. Portuguese 10-year yields declined but Greek 10-year yields rose to 8.6% as markets continue to assess how effective the recent agreements are likely to prove. Germany auctioned 5-year notes at a negative yield for the first time. Meanwhile, US Treasury yields were unchanged after yesterday’s Yellen-related moves. Bank of Canada Governor Poloz commented that January’s shock rate cut was an “insurance” measure, and the Bank could now afford to see how the economy responds. This saw the interest rate market reduce its expectation of a further 0.25% at the next meeting from 80% to 40%. The CAD gained strongly, sparking USD weakness across the board. USD/CAD fell from above 1.26 and dipped below 1.24 last night, a 2.0% peak-to-trough loss over the past 24 hours. Have a good day.

Economic Calendar 26 FEB

  • NZ Trade Balance Jan
  • AU Private Capital Expenditure Q4
  • US CPI Jan

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