Market Drivers November 10, 2016
Europe and Asia
NZD: RBNZ rates at 1.75% – 25bp as expected
AUD: AU Home Loans 1.6% vs. -2.0% expected
North America
USD: US Weekly jobless claims
CAD: New House Price Index
The dollar was furiously bid in Asian and early European trade today with USD/JPY rising to fresh four month highs at 106.92 as the Trump rally continued.
The capital markets have realized that the election of Donald Trump and a fully Republican Congress is likely to result in massive expansion of fiscal spending which in turn will likely spur growth and put upward pressure on US interest rates. That has translated into a very strong bid for the dollar, especially for USD/JPY, as US yields broke out above the key 2.00% level on the benchmark 10 year bond.
The pair has now gained more than 500 pips off the lows set on election eve and may be due for a small pause, but it is remarkable at how fast the market shifted from risk off to risk on mode as traders realized that Mr. Trump's policies may be highly stimulative to the US economy.
The dollar was also well bid against the euro which slipped below the 1.0900 mark, and cable which dipped below 1.2400 but the action was much more muted on the European side.
The one exception to the dollar rally move was the Aussie which climbed all the way to .7740 on a surge in iron ore prices and AUD/JPY demand. The Aussie also took out the 1.0600 figure against the kiwi after RBNZ Governor warned that he would be open to intervention if NZD/USD climbed much higher.
With no major US data on the docket today the market will focus on President-elect Trump’s first public appearance as Mr. Trump faces the press on the White House lawn with President Obama. Mr. Trump’s conciliatory tone has done much to calm the markets and if he maintains that posture today the risk rally may continue.