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Aussie Gains On Surprise Retail Sales Jump, Dollar Just In The Green

1/11/2018, 10:05:11 AMMarket Analysis
Aussie Gains On Surprise Retail Sales Jump, Dollar Just In The Green

The Aussie gained in Asia on Thursday with a surprise gain in retail sales and the dollar rebounded slightly with investors looking to see if the Bank of Japan makes any comment about policy though analysts note that such signaling is usually formal and there is little reason for Governor Haruhiko Kuroda to abruptly change policy with no prior warning.

USD/JPY changed hands at 111.45, up 0.01%, while AUD/USD traded at 0.7864, up 0.27% ahead of data sets.

Australia reported retail sales for November jumped 1.2%, compared with a 0.4% gain seen.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last quoted down 0.13% to 92.11.

Overnight, the dollar fell sharply higher against a basket of major currencies amid fears of a significant reduction in foreign dollar asset purchases after a report suggested China is considering reducing its US Treasury purchases.

Officials reviewing China's foreign-exchange holdings reportedly recommended slowing or halting purchases of U.S. Treasuries, Bloomberg News reported, citing people familiar with the matter.

While it remains unclear whether the officials’ recommendation have been adopted, the greenback fell sharply amid expectations that a large chuck of foreign dollar demand would diminish as 50% of China’s $3.1 trillion foreign exchange reserves are in dollar assets, with Treasuries representing between 35% to 40% of the total.

"If China stops buying Treasurys, the market could suffer," Jefferies said in a note to clients. "Treasury financing needs are going to rise significantly in 2018 and beyond relative to recent history, so Treasury is going to be looking for as many sources of demand as they can find.China turning away from the market potentially makes Treasury's job harder."

"However, this prospect might already be old news since there is evidence that China has not been a big buyer of Treasuries for several years now. From January 2007 through July 2011, Chinese holdings of Treasury notes and bonds rose from $401 bln to $1.315 trln. However since that time, Chinese holdings have fallen to $1.189 trln and touched as low as $1.049 trln in January 2017."

Also weighing on the dollar was ongoing yen strength after the Bank of Japan’s recent decision to trim purchases of long-term bonds stoked investor expectations that the central bank is poised to rein in its ultra-accommodative monetary policy measures.

Canadian officials say there is an increasing chance the US moves to withdraw from NAFTA, but Canada has no information convincing it withdrawal will happen soon. Canada, this officials say, remains concerned about, and prepared for, a break.

Separately, Bill Gross of Janus Henderson Group said on Twitter that bonds are in a bear market, while his old shop Pimco, one of the world's biggest money managers, sees this week's U.S. bond market selloff as a buying opportunity and is not ready to call the spike in 10-year Treasury yield to a nine-month high a bear market precursor