Forex today: dollar and Wall Street fired up by risk appetite and return of the Trump-reflation trade

Forex today was awaiting the tax reform speech from President Donald Trump at a rally in Indiana. 

Rates were higher in the US 10yr yields that rose from 2.24% to 2.31% to a two-month high and the Fed fund futures yields continued to price the chance of a December rate hike at 76%. Markets were generally higher all around, seen in Wall Street's optimism over fiscal progress with the corporate tax rate proposed at 20% from 35%. 

The US dollar rose by 0.5% to a one-month high in the DXY as the reflationary Trump trade re-awakens.

However, markets are on tender hooks in respect to the reflation trade, considering how low several measures of inflation have been reading of late, and indeed, Yellen was not particularly convincing yesterday that this period of low inflation is just transitory.

Fed's Kashkari, a voter and dissenting Dove, who was speaking earlier this week explained when speaking at Town Hall In North Dakota, that inflation is low because of the continued foreign investment into US government debt, thus keeping rates low; That is not something that is likely to change in the near-term but is clearly a concern going forward, as Yellen touched on yesterday where she fears that the Fed could end up behind the curve if the fiscal house is not put in order and before investors chose to invest somewhere else. 

Today, we had two other Doves speaking, Bullard who said that the current U.S. federal funds rate is appropriate given slow economic growth, low inflation and Brainard who, while made no mention of US MP, she was somewhat bearish on the US economy and said that there was no need to be pre-emptive to get ahead of inflation. 

The majors are increasingly more sensitive to rates with the euro and yen anchored due to the Central Bank's divergence. While the ECB is expected to play catch up with the Fed, markets are running out of patience and the five-month-long euro rally is hitting a wall in the meantime. 

EUR/USD was down -0.38% at 1.1747 from a high of 1.1795, meeting a low of 1.1717. USD/JPY was +0.49% to a high of 113.26 form a low of 112.20 closing at 112.79. Cable was -0.53% at 1.3388 with a high of 1.3462 and a low of 1.3462. EUR/GBP was up +0.14% as the pound gave up some ground. Commodities were improved despite a higher dollar with metals rising. However, the Aussie can't shale the bears off as markets pressure the higher betas in risk-on, down -0.46%, although the Kiwi, albeit pressured by a jawboning-on-hold-RBNZ, lost only -0.11% today. Gold was lower to $1,281.40 spot while WTI traded sideways in an $0.86c range between $51.71 and $52.57 bbls with USD/CAD +1.03% after BOC’s Poloz switches to a dovish and cautionary stance who sees growth moderating in H2.

Key notes from US session

• Wall Street extends gains on tax reform framework
• US Pres. Trump: Going to cut taxes for middle-class, make tax code fairer and simpler
• Overview of President Trump's tax proposal
• Fed's Bullard: Current level of policy rate is appropriate given current macroeconomic data
• NZD/USD slightly lower on RBNZ jawboning, rates unchanged as expected
• RBNZ keeps interest rates on hold at 1.75%
• BOC's Poloz continues to speak: temporary factors holding down inflation will dissipate
• US Durable Goods Orders: Positive momentum heading into year-end - Wells Fargo

Key events ahead in Asia 

Australia: RBA Deputy Governor Debelle speaks on ‘Central Bank Independence in Retrospect’, 7:00 pm Sydney time.