Daily Report: Dollar Retreats Mildly After Recent Rally

Dollar trades mildly lower as recent rally is taking a breath. But the greenback stays generally firm as supported by Fed hike expectations. Fed fund futures are pricing in 85.8% chance of a December hike as of yesterday. Also there are expectations that president-elect Donald Trump’s expansive fiscal policy would lead to fast path of tightening by Fed. This was accompanied by surge in treasury yield with 10 year yield hitting as high as 2.27 before closing at 2.22, up 0.11. 30 year yield breached 3.00 handle to as high as 3.03 before closing at 2.98, up 0.05. Such expectations also boosted DJIA to new record high at 18934.04 before closing at 18868.89, up 0.11%. The sharp rally in financial stocks offset the selloff in techs. In other markets, WTI crude oil extended recent decline to as low as 42.20 before recovering back towards 44.00. Gold also dipped to as low as 1211.0 before recovering back to 1230.

Dallas Fed president Robert Kaplan sounded cautious on the impact of Trump’s policies. He noted that “there are some potential policies that would be positive for GDP; there are some potential policies that might be negative for GDP”. Meanwhile, he noted that recent surge in bond yield “doesn’t yet have implications for what I might or might not do”. He maintained his expectation that GDP will grow 2% next year. And, it’s appropriate for Fed to remove some accommodation in the near future.

The minutes of November 1 RBA meeting noted that overall assessment on inflation forecast was that risks were “broadly balanced”. The central bank noted that there were still “considerable uncertainty remained about the strength of labor market conditions and the implications for labor cost growth.” And the uncertain degree of “spare capacity” might “ultimately affect inflationary pressures”. Meanwhile, housing markets had become “more complicated” as price growth picked up “noticeably” in Sydney and Melbourne. Released from New Zealand, retail sales dropped -0.8% qoq in Q3.

The economic calendar is rather busy today. Eurozone will release Q3 GDP and trade balance. Germany will release ZEW economic sentiment. UK will release CPI and PPI. US will release import price, Empire state manufacturing, retail sales and business inventories.

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