USD unlikely to soften by more than 0.5% despite US shutdown averted – TDS

At the 11th hour, Congress managed to avert a US government shutdown. The shutdown was not expected to be a major market driver. Economists at TD Securities expect a short-term pullback in USD.

How will markets react?

In a surprise turn of events, Congress managed to avert a US government shutdown by passing a 45-day Continuing Resolution that shifts the funding deadline to November 17.

Given the shutdown was almost universally expected to happen, and have only minimal impacts on any data, we would expect only limited initial reactions on Monday.  We would expect 10Y Treasury yields to move 3-5 bps higher due to decreased uncertainty and the USD to weaken by around 0.3%.

The status quo remains biased for rates and the USD higher until data weakens and investors get comfortable taking on duration risk. Beyond the knee-jerk relief, delaying the shutdown risks increasing the hawkish reaction to any upside data surprises.