Analysts at Westpac offered a summary of overnight events in the financial and commodities markets.
Key Quotes:
"The ECB policy meeting turned out to be more an affirmation of the ECB’s policy stance than an early shift in guidance. Despite surprisingly dropping the risk of needing to expand asset purchases (money-printing/QE) if conditions deteriorate, the overall stance remained dovish. Forecasts changes were minimal and despite better growth prospects, inflation during the forecast period was actually lowered marginally. Of note, ECB president Draghi stated in the press conference that “victory cannot be declared yet on inflation”.
EUR/USD initially rose from 1.2380 to 1.2445 in response to the ECB written statement (which removed the conditional pledge to extend QE), but then fell following Draghi’s more cautious tone in the press conference, extending losses to 1.2300 in the NY afternoon, -0.9% on the day. This seemed to encourage the notion that the major central banks will take even longer to join the Fed in raising interest rates, making the US dollar more appealing. GBP/USD rolled over from 1.3900 to 1.3800 in a steady decline.
AUD/USD weakened in line with EUR and GBP, -0.6% on the day, easing from 0.7830 late Sydney to 0.7775 late NY. This was despite President Trump flagging an exemption for Australia from the steel and aluminium tariffs, due to the US’s trade surplus with Australia (i.e. trade must be “fair”!) and the military partnership.
USD/JPY rose only fractionally to 106.20, showing caution ahead of the BoJ meeting. NZD/USD fell just 0.3% on the day, so AUD/NZD slipped from 1.0750 to 1.0715. USD/CAD trended higher for much of local trade but slipped back on reports that Canada and Mexico would be exempted indefinitely from the tariffs, given ongoing NAFTA negotiations. That seems to leave Brazil, S Korea, Turkey and Russia to bear the brunt of the tariffs.
The US 10yr treasury yield fell 4bp, from 2.89% to 2.85%, in sympathy with German 10yr yields which fell 7bp to 0.62% following ECB Draghi’s dovish comments. US 2yr yields remained rangebound between 2.24% and 2.26%. Fed fund futures continued to price three more hikes by end-2018 (with March a 90% chance), and another hike in 2019."
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