Massive Volatility Expected to Continue

Massive Volatility Expected to Continue
Despite the fact that US equities made a strong comeback in the final hours of trading, risk-off flows remained the dominant factor in FX markets on Monday, with traders blaming China's lockdown worries as the primary driver.
The rate-sensitive safe-haven yen was the most robust performing G10 currency amid a steep drop in global bond yields as traders evaluated global growth forecasts with the mounting potential of a wider closure of the world's second-largest economy.

"Further dollar index upside remains a good bet. China growth risks are rising as authorities pursue an aggressive COVID-19 campaign, conditions around Ukraine remain volatile, and 'Fedspeak' remains as hawkish as ever," Westpac analysts said in a note.

Additionally, sterling dropped to the lowest since September 2020 on the other side of the Atlantic. According to data from the US futures market, investors have collected their largest bet against the pound since October 2019, with a total value of about 5 billion USD.

On the other hand, the loonie might just have benefited from BoC Governor Tiff Macklem's hawkish remarks on Monday, in which he reaffirmed the need for an increase in interest rates to curb inflation, predicted a 50 basis point rate hike at the next gathering, and even proposed a 75 basis point boost.

Meanwhile, the conflict in Ukraine is now in its third month, with Russian soldiers continuing to attack the Azovstal steel complex in Mariupol, Ukraine's southeastern coastal city, where around 2,000 Ukrainian fighters are defending themselves.

Tuesday will bring US durable goods orders for March, expected to improve notably monthly. Moreover, consumer confidence and personal spending/income data are due. 

Heading into the numbers, stocks are trying to follow up on yesterday's huge bullish reversal. However, the medium-term outlook still seems bearish as nothing has changed fundamentally, and rates will need to go up. 

Still, the USD has lost some of its gains as traders have started taking profits after pushing the dollar index toward 102, the highest since the covid lockdown in 2020.
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