FOREX ASIA UPDATE - USD

The USD was mixed overnight, taking a back seat to the high-yielding AUD and NZD, which rose at the expense of the low-yielding CHF and JPY.

Most notable was AUDUSD, which rose to highs above 0.8030 early this morning, still underpinned by more hawkish central bank expectations following RBA Edey's speech on Friday.

US 2 and 10-year Treasury yields rose by 3 and 2bp respectively, while the S&P500 rose by a strong 1.1% from Friday's close.

The US housing market index came in a bit weaker than expected but this had no discernible impact. The index declined to 36 in March from 40 in February and was the first decline since September, with a reading below 50 indicating that more homebuilders believe that conditions are poor.

Deputy Treasury Secretary Kimmitt was upbeat on the US economy and said that the housing market appeared to be stabilising and weakness was not spreading to the consumer sectors. We continue to expect pressure on carry positions to resume in the coming weeks and look for US data to weaken sufficiently to keep rate cut prospects in play.

However, with the data calendar quiet this week, we suspect that the current rebound in carry trade sentiment could have a bit further to go, to the benefit of the USD. Dollar sentiment could be further bolstered if the Fed elects to offer little or no acknowledgement of economic weakness in its statement on Wednesday.

Our economics team expects the Fed to nudge their statement at least moderately in the neutral direction, but with the USD near the bottom of its recent ranges vs. the EUR, we think risk-reward favours USD tactical longs at current levels.

Accordingly, go long USDCHF as a trade recommendation, entering at 1.2092, with stop set at 1.1965 and target at 1.2350.

Looking ahead and housing starts for February is due at 1230 GMT. The FOMC begin their two-day meeting today.