Market wrap: dollar closing near to week's high - Westpac

Analysts at Westpac offered a market wrap for last week's close in the US.

Key Quotes:

"Global market sentiment: Quarter end rebalancing and dovish Fedspeak saw US interest rates fall slightly, while exchange rates were mixed.

Interest rates: US 10yr treasury yields fell from 2.43% to 2.39%, 2yr yields from 1.29% to 1.25%. Fed fund futures yields priced around a 65% chance of the next hike occurring in June.

There was a small index extension at quarter end, motivating some buying, and Dudley was characteristically dovish, although he, Kashkari and Bullard all spoke of shrinking the balance sheet.

Currencies: The US dollar index was little changed on Friday but did close near the week’s high.

Other currencies had mixed fortunes against the USD:

• EUR fell from 1.0702 to 1.0652, noting the softer CPI print. USD/JPY fell from 112.20 to 111.25.
• AUD slipped from 0.7660 to 0.7623. NZD bounced off 0.6976 to 0.7017.
• AUD/NZD fell from 1.0960 to 1.0880."

Economic Wrap

Eurozone CPI fell from 2.0% to 1.5% in Mar (1.8% expected) as the boost from energy waned. Core CPI was much softer, falling from 0.9% to 0.7% (0.8% expected).

US personal income rose 0.4% in Feb, as expected but spending rose only 0.1% (0.2% expected). Last year’s oil-related savings spike is proving slow to unwind. The core PCE deflator nudged higher to annual pace of 1.8%, with Jan also revised from 1.7% to 1.8%. Consumer sentiment (Michigan U.) was revised down from 97.6 to 96.9 for its final reading. However, 5-10yr inflation expectations were upgraded from 2.2% to 2.4%. Chicago PMI rose from 57.4 to 57.7 (56.9 expected).

FOMC dove Dudley said two more rate hikes in 2017 "seems reasonable," but felt the economy is not overheating and the Fed is not at a stage where there is urgency to tighten. He saw the neutral Fed funds rate between 2% and 3%. He expected the bond portfolio to be trimmed gradually, perhaps starting late in 2017 or in 2018.