Market wrap: USD outperformed all the majors - Westpac

Analysts at Westpac noted the key events in markets overnight.

Key Quotes:

"European equity markets posted sharp gains, brushing aside the poor close in Tokyo (from +3% at lunch to +0.2% at the close). There were no major data releases but optimism around the US fiscal outlook, with Senate leaders announcing an agreement on a 2 year budget which boosts spending and includes suspension of the debt ceiling until March 2019. There will be some resistance in the House to such a plan but its passage seems likely, an unexpectedly timely resolution to what have been difficult issues for Congress. 

The USD outperformed all the majors. EUR/USD fell from 1.2400 to 1.2250, GBP/USD from just short of 1.4000 to 1.3860 and USD/CAD bounced from 1.2510 to 1.2570. The yen outperformed, USD/JPY edging lower on the poor Japanese equity price action before recovering from under 109.00 to 109.60.

Despite the improved equity sentiment, commodities fared poorly, perhaps weighed by the stronger US dollar. Crude oil and copper both fell sharply. This presumably didn’t help AUD/USD, which chopped down from 0.7880 late Sydney to just under 0.7820, printing lows since 10 January.

NZD/USD fell from 0.7320 to 0.7260 as the RBNZ released its Monetary Policy Statement. This saw the expected steady hand at 1.75% and no change in the projection of interest rates. But following the large downside surprise on Q4 CPI, the RBNZ has revised its inflation forecast such that inflation doesn't reach 2% until September 2020. This may be why the kiwi extended losses to below 0.7220. AUD/NZD thus bounced from 1.0780 to 1.0840.

US 10yr treasury yields rose from 2.76% to 2.85%, and 2yr yields rose from 2.07% to 2.14%. Fed fund futures firmed the chance of another rate hike in March to above 90%. There was Fedspeak, with Chicago dove (and non-voter in 2018) Evans, who said the economy is “firing on all cylinders” and saw hints of inflationary pressures. Dallas’s Kaplan said the US will probably overshoot full employment, but is undershooting inflation target, and that it was wise to remove accommodation in a “patient, balanced manner”."