Market wrap: a softer dollar tone maintained - Westpac

Analysts at Westpac offered a market wrap.

Key Quotes:

"EUR/USD had a run back up to above 1.2000 in the London morning but slipped a little on Eurozone inflation data. The surprise in Eurozone April CPI (headline 1.2%y/y, exp. 1.3%y/y) was more apparent in the core release (0.7%y/y, exp. 0.9%). Although some transitory impacts were cited, including the shift in the date for Easter, this is yet another piece of data coming under ECB and official projections and reducing the haste for ECB to alter their policy guidance.

In the US, the Institute for Supply Management service sector index fell for a third month in a row in April, to 56.8, below consensus at 58.0 but still historically robust. All eighteen industries in the survey reported firmer conditions - rarely seen - and new orders firmed too, underscoring strength, though the closely followed employment index fell to a one-year low 53.6, a cautionary signal for April non-farm payrolls.

AUD/USD rose 0.5% over the day to 0.7530/40, but most of that occurred in Sydney trade, helped by upside surprises on Australia’s trade balance and building approvals in March. The kiwi outperformed for no apparent reason, NZD/USD up 0.7% over 24 hours to 0.7040. This knocked AUD/NZD back below 1.0700.

The somewhat sour risk mood in the NY morning (S&P 500 -1.5%) weighed on the 10 year Treasury note yield, from 2.97% to 2.93%, before steadying. This reinforced the failure of USD/JPY to follow through on its probe of 110, instead dipping as low as 108.93. CAD gained only modestly from the bounce in oil prices and soft USD mood, -0.2% on the day to the mid-1.28s. GBP/USD was net unchanged around 1.3570.

Interest rate markets remain very confident of a Fed rate hike in June, pricing almost 100% chance. But yields fell 2-4 basis points for 2019 Fed funds futures contracts."