Gold is trading a bit higher in delayed response to the US dollar weakness. The yellow metal may steady, but rallies face headwinds.

Besides higher US yields as the most significant impediment, Bitcoin is sucking the life out of Fort Knox’s as speculators think Bitcoin, not Gold is the best hedge for the Fed’s tinder box of a balance sheet this time around.

Bitcoin stealing the thunder

BTC continues to suck the life out of Fort Knox as the growing consensus continues to resonate among investors that holding cash is an awful thing.

In the wake of Tesla profit bonanza, discussions are likely accelerating in the corporate board room as to what roll BTC could play on the balance sheet from now on.

Besides the enormous Middle East consortium interest and another Bitcoin ETF trading on the Toronto exchange, if corporates start to add physical coins to the balance sheet this year, it’s the game-changing panacea.

As corporate treasuries accumulate bitcoin but could face a reckoning at some point as regulators might eventually wonder whether 100-vol asset belongs on corporate balance sheets. Who knows, maybe it does?

Australian Dollar

Implied yields continue to move higher, supported by tight funding but also supported by excess US dollar in the system, which is also the case for most G11 currencies, driving implied yield higher there too. Hence the US dollar is trading weaker this morning extending a common theme from the end of last week.

Malaysian Ringgit

Malaysia’s ringgit continues to trade in a tight range supported by + $60 Brent crude prices but getting held in check by rising US yields.

How disruptive US yields become via the currency market, and particularly Asia FX, really comes down to the rise in speed and how quickly trader reprice the short end of the US curve.

Any signs of a faster Fed Fund’s rate hikes will be the ultimate wrecking ball for Asia FX sentiment.

But look for the MYR to trade to the beat of broader US dollar markets, which should be favourable to today’s ringgit.

Implied Inflation vs Fed Funds

An irregularity is building between inflation expectation and Fed Funds rates. It’s not about lower for longer rather, it’s about the terminal peak.

The Fed says that all being well, it still thinks long-term neutral is 2.5%. The front end of the curve has repriced of late, from 1.5% to 2.5% – that is the driver of real rates at the moment.

In January, it was a very different story back then. It was a risk premium associated with taper fear which is why break-evens did not have too much of a problem today is different.

But so long as US front-end rates and rate vols remain unresponsive despite other assets repricing post positive normalisation/societal reopening/fiscal stimulus developments, the dollar bulls could remain relegated to the pen over the short term.

Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi