Central banks continued to move world markets Wednesday. The US Dollar continued the breakout rally that started with Fed Chair Janet Yellen’s hawkish comments Tuesday which has traders increasingly speculating on a December US rate hike and more to follow in 2018 (perhaps under new leadership at the central bank).
The rallying US Dollar has put pressure on a number of other currencies. The Loonie came under particular pressure today, falling off a cliff following comments from Bank of Canada Governor Poloz. He indicated that the two 2015 rate cuts were no longer needed (and have been removed with the two recent rate hikes). Looking forward, however, he took a more cautious tone saying that the bank is now data dependent, and that it’s not following a fixed mechanical program. With NAFTA negotiations ongoing and Bombardier selling off in the wake of a 220% tariff being slapped on the CSeries Aircraft by the US Commerce department potentially sparking a trade war, it looks like the Bank could remain on hold through the rest of this year at least.
The post-Wheeler era at the RBNZ started today with a steady statement. Acting Governor Spencer maintained the OR at 1.75% and didn’t make any waves. In the statement he recognized that the New Zealand Dollar has come down a bit lately. While the central bank noted a lower dollar would help growth and to boost inflation it did NOT make any threats against the currency. He also indicated that monetary policy is likely to “remain accommodative for a considerable time” as “numerous uncertainties remain”. NZD held steady on what the street has taken as a neutral stay the course first time out for the new leadership group.
US markets rallied amid mixed economic news and the Republicans finally announcing their tax reform plan. Details aren't that important as they are likely to change anyway but the key thing is that something is finally on the table and moving forward. The NASDAQ rallied 1.1% with the S&P 500 gaining 0.4%. Stronger than expected durable goods orders were offset by poor pending home sales.
Energy markets appear to have finally put the hurricane disruptions behind them. Crude inventories staged a surprise decline while gasoline posted a surprise increase in DOE reports. WTI gained 0.3% while gasoline plunged 3.3% on the news. Natural gas gained 1.9% ahead of Thursday’s storage report.
Looking to Thursday, US GDP may not have much of an impact unless there’s a huge surprise, while the parade of Fed speakers continues.
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