Dollar weaker as investors await details on Trump tax plans

Andrew Cummings
March 1, 2017

The dollar spurted higher in Asian trade on Wednesday as Federal Reserve policy-setters fanned expectations of a rate hike this month, overshadowing a key speech by U.S. President Donald Trump that offered little details on his stimulus.

Trump pledged to overhaul the immigration system, improve jobs and wages for Americans and promised "massive" tax relief to the middle class and tax cuts for companies.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.24 percent, while Japan's Nikkei fell 0.9 percent for its lowest close since February 9 on concerns that a stronger yen would crimp corporate earnings. The Bank of Canada is widely expected to hold its policy rate at 0.5 percent.

The Bloomberg Dollar Spot Index rose 0.1 percent on Monday.

The benchmark 10-year U.S. Treasury note yield was marginally lower in late trading at 2.365 per cent, while the 30-year bond yield was down almost 2 basis points at 2.967 per cent.

The chances of an increase in March for US interest rates rose to 76 percent, pushing up the dollar and dragging shorter maturity Treasuries lower, after Federal Reserve Bank of New York President William Dudley said the case for tightening monetary policy has become a lot more compelling.

There were mixed data reports out of Japan today, making the yen volatile after the releases.

Australian shares were off 0.6 percent despite stronger GDP data, though the Australian dollar strengthened 0.3 percent to $0.7678 on confirmation the economy returned to growth in the fourth quarter. Two-year yields jumped seven basis points to 1.26 percent.

John Williams, president of the San Francisco Fed, said that a rate increase was very much on the table for serious consideration at the March meeting.

Williams doesn't have a vote this year but remains influential among his colleagues.

US 10-year Treasury notes were last down 14/32 in price to yield 2.367 percent, from a yield of 2.317 percent late Friday.

Futures traders are pricing in only a 33 percent chance of a March rate increase, according to CME Group's FedWatch Tool.

The sharp shift came despite disappointing USA fourth-quarter gross domestic product growth, as downward revisions to business and government investment offset robust consumer spending. Investors shifted their focus to Trump's policy speech to a joint session of Congress on Tuesday night, when he is expected to provide clues on his tax-cutting plans. They increased bullish bets on the US dollar for the first time in seven weeks, according to Commodity Futures Trading Commission data released on Friday and calculations by Reuters.

Oil futures dipped as OPEC-led output cuts were offset by concerns about increasing U.S. crude production.

In commodities, Brent crude settled down 0.1% at $55.93 per barrel while US West Texas Intermediate settled up 0.1% at $54.05 per barrel as a global supply glut appeared to ease.

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