OVERNIGHT MARKET UPDATE: Daily FX Update, 9 April 2015

OVERNIGHT MARKET UPDATE:

·         In US, FOMC minutes reveal a divide over June as a possible start date for rate rises and reduced the path of forecast increases. However, the pledge to be ‘patient’ was dropped.   

·         New York Fed President Dudley reiterated that the Fed’s tightening cycle is likely to be gradual, with the pace of normalisation dependent on how economic and financial conditions respond. Federal Reserve Governor Powell stated that the “unemployment rate probably understates the amount of slack remaining in the labour market” and that this justifies a gradual approach to monetary policy normalisation.  

·         European data were mixed overnight. Euro area retail sales declined 0.2% m/m in February, in line with market expectations. This followed four healthy monthly increases and sales were up 3.2% y/y. German factory orders undershot expectations in February, declining 0.9% m/m versus expectations for a 1.5% m/m rise. 

·         In the currency market, AUD, NZD and GBP were strong overnight, but an increase in US oil inventories hit CAD and NOK. The FOMC minutes revealed June might be more on the cards than markets are pricing, supporting a late bid tone to USD. 

·         US 10-year Treasury yields rose modestly. The initial reaction to the FOMC minutes was a flattening of the yield curve but overall moves were minimal.   

·         US equities rallied on the FOMC minutes. Major averages closed 0.15% to 0.83% higher from the previous closing. 

·         Crude oil prices declined following a large increase in EIA crude inventories in the US. Inventories jumped 10.9 million barrels to 482.4 million, the biggest gain in 14 years. Compounding matters was the increase in domestic oil production to 9.4 million barrels and a rise in supplies at Cushing to 60.2 million barrels. Saudi Arabia has also increased its crude production, expecting to produce around 10mbbls/day, its highest rate on record.   

The entire precious metals complex was pressured by USD strength. Gold price declined 0.73% to US$1,202.77 per ounce.