Market wrap: dollar up on US debt ceiling extension - Westpac

Analysts at Westpac offered a market wrap.

Key Quotes:

"Global market sentiment: The US dollar, bond yields, and equities rose, in response to an extension of the US debt ceiling and government spending until December.

In other news of interest, Canada’s central bank hiked by 25bp, and the Fed Vice-Chair Fischer resigned for personal reasons.

Interest rates: US 10yr yields rose from 2.06% to 2.11%, 2yr yields from 1.29% to 1.31%. Fed fund futures yields are pricing the chance of a December rate hike at around 36%.

Currencies: The US dollar index is up 0.1% on the day, after recovering from earlier rumours on ECB tapering timing. EUR initially rose from 1.1910 to 1.1950 but retraced after the US debt ceiling news. USD/JPY rose from 108.50 to 109.40. AUD was choppy, ranging between 0.7965 and 0.8016. NZD was the day’s underperformer, falling from yesterday morning’s high of 0.7261 to 0.7190. AUD/NZD rose from 1.1040 to 1.1120.

Economic Wrap

The US passed a hurricane-relief bill, and reached a temporary agreement to extend the U.S. debt limit and government spending until 15 December. Some Republicans were opposed to the agreement, believing Democrats could have more bargaining power in December.

The Fed’s Beige Book of regional economic conditions repeated the mantra: the economy expanded at a modest to moderate pace across all 12 Fed Districts (noting the report was prepared before Hurricane Harvey struck).

Fed Vice-Chair Fischer announced his resignation from the Federal Reserve Board, both as a governor and a Vice-Chair, effective mid-October, citing personal reasons. His term as Vice-Chair was set to expire in June.

Bank of Canada increased its policy rate from 0.75% to 1.00%. Given the stronger than expected economic performance, the Governing Council judged that today’s removal of some of the considerable monetary policy stimulus in place was warranted. Future monetary policy decisions will be guided by incoming economic data and financial market developments as they inform the outlook for inflation. Particular focus will be given to the evolution of the economy’s potential, and to labour market conditions. Furthermore, given elevated household indebtedness, close attention will be paid to the sensitivity of the economy to higher interest rates."