Analysts at Westpac explained that equity markets rallied strongly in Europe and the US as the election results were digested.
Key Quotes:
“The US dollar was generally weaker. AUD/USD briefly touched 0.7300, a high since late September.”
“The RBNZ was a little more upbeat as expected. Today we see Oct China trade data but then little of note until the FOMC statement which should pave the way for a Dec rate hike.”
“Compared to just before the US mid-term election results, US equities are higher and the US dollar and US bond yields are modestly lower. Given the results were close to predictions, the equities’ reaction may be interpreted as relief the uncertainty has ended. The Democrats’ capture of the House is likely to mean less drama over government funding and the debt ceiling plus potentially extra spending on healthcare etc, but no new corporate tax cuts. Trade policy remains largely in the president’s hands, though ratification of e.g. the revised NAFTA is likely to be more difficult.”
“The US dollar is down against all G10 currencies on the day, initially falling in response to the election results and then partly retracing. EUR/USD initially rose from 1.1440 to 1.1500 but later fully retraced. GBP/USD rose 0.3% to 1.3140. USD/JPY was volatile as the votes were counted and also struggled for direction in London/NY, eventually little changed, around 113.40.”
“AUD/USD extended gains from 0.7240 to a fleeting high of 0.7300 in London trade (a high since 26 September), then steadied around 0.7280.”
“Outperformer NZD extended its sharp gains on the strong NZ labour market data, from 0.6670 pre-data to 0.6790 in NY. There was then volatility in response to the RBNZ statement, which was less dovish overall in its language, but no more so than many will have expected given stronger inflation and jobs data. The RBNZ expects to keep its cash rate at 1.75% “through 2019 and into 2020.” AUD/NZD dropped from 1.0830 on the NZ unemployment data to around 1.0720, ticking slightly higher after the RBNZ statement.”
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