Analysts at Westpac explained that US equities headed for a third straight daily decline, as markets remained focused on trade tensions and soft Feb retail sales data prompted economists to cut Q1 GDP estimates.
"US retail sales fell 0.1% in February, the third consecutive decline and well shy of expectations for a 0.3% gain. The underlying detail showed relatively broad-based weakness too, though Jan was revised to show a slightly less weak 0.1% fall, from -0.3%. The retail control group, a subset used for GDP calculations, rose a mediocre 0.1% (0.4% expected), after a flat Jan outcome, prompting widespread Q1 GDP downgrades. The widely watched Atlanta Fed GDP tracking model trimmed its Q1 projection to 1.9% annualised from 2.5%.
There was only a small dip in the US dollar and yields in response to the data, perhaps on the assumption that the Fed policymakers who meet next week will have already largely formed their opinions about the interest rate outlook.
EUR/USD slipped from 1.2413 to 1.2347 before steadying at 1.2375. A series of ECB officials, notably Draghi, reiterated the gradual path for policy and guidance, but also stressed the negative risks from trade tariffs and Draghi specifically stated that EUR strength would weigh on inflation.
USD/JPY slipped from 106.70 to 106.07 as US equities turned early gains into modest declines. GBP/USD was whippy at times but eventually flat, around 1.3970. USD/CAD consolidated Tuesday’s sharp rise driven by Bank of Canada comments but avoided 1.3000.
AUD/USD extended its gentle Sydney session rally in London trade to a high of 0.7917, its strongest point since 21 February, but was then pulled back to 0.7870/80 by weaker US stocks. The Aussie’s strength is a little surprising given the deepening US-China trade tensions, but on the positive side, China’s Jan-Feb industrial production growth of 7.2%yr was well above expectations.
NZD/USD ranged sideways between 0.7320 and 0.7355. AUD/NZD bounced off 1.0710 in Sydney trade to around 1.0750 late NY.
The US 10yr treasury yield fell from 2.85% to 2.81% as risk appetite softened, while 2yr yields gyrated between 2.24% and 2.29% for little net change at 2.26%. Fed fund futures continued to price three more hikes by end-2018 and another hike in 2019."
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