Forex today: risk-off puts yen on top below 112 handle vs dollar

The FX space was dominated by a heavy risk-off tone and the usual suspects playing out their role such as AUD/JPY.  The recent dovish Fed hike and Yellen's presser failed to instil confidence in investor's and global markets who have since sold out of the dollar. The Fed fund futures were little changed today though and they still continuing to price in around a 60% chance of a rate hike for June. 

The stock market led the way on the downside today with the benchmarks dropping over 1%. There was a 2.5% fall in financials and 1.4% drop in industrials. US 10yr treasury yields fell from 2.50% to 2.42% - a three-week low - while 2yr yields fell from 1.31% to 1.26% and the DXY dropped below the 100 milestone and was down 0.6% lower at the close. Oil fell further today and gold firmed to USD1245/oz. 

Investors are concerned that Trump's health bill will not be passed and the market is starting to speculating that tax reform and spending cuts will be delayed - thus, the reflation trade is being unwound. The winners in the G10 FX space were the yen and the pound with risk off favouring the Yen and GBP was quickly approaching 1.25 after inflation surprised to the upside. USD/JPY fell from 112.87 to 111.69. EUR/USD gained the 1.08 handle to 1.0818 the high. AUD fell from 0.7750 to 0.7696 while NZD rallied to 0.7090 after the GDT dairy price surprise. The auction was rising by 1.7% following a 9% fall over the previous two auctions, but NZD sellers arrived and took the bird back down to 0.7033 vs the dollar. 

Day ahead

Analysts at Westpac noted the key events for the day ahead: 

"Australia: RBA Deputy Governor Debelle speaks about the global FX code of conduct at the TradeTech FX Asia Conference. The Feb Westpac-Melbourne Institute Leading Index previously held at 1.30% in Jan after surging strongly in recent months - a sharp turnaround on a year ago and near the most recent peak in early 2013. This has been spearheaded by a jump in commodity prices but with notable support from financial shifts. However, domestically focussed components have been mixed.

US: Feb existing-home sales annual rate jumped by 3.3%yr in Jan taking it to a new cyclical high. Monthly data is volatile and the market expects a pullback in Feb but the underlying theme of confident households stretching inventory levels remains present – median existing-home price is up 7.1%yr whereas existing homes available for sale is down 7.1%yr. Fedspeak involves Mester speaking at the University of Richmond and the text of Rosengren’s speech to a closed meeting on Asia-Pacific banking supervision is released."

Key notes from the US session:

• US: Treasury yields in freefallOPEC's oil production cuts are having unintended consequences - Goldman Sachs
• Wall Street suffers the worst one-day decline of 2017
• Federal Reserve George: "Re-calibrating monetary policy can be more challenging"
• USD/JPY drops below 112.00 as equity prices tumble in Wall Street
• GBP top performer on UK CPI through the roof - Scotiabank
• Economy not growing nearly as fast as anyone would like - Fed's Kashkari
• The US financial crisis still casts a long shadow - Westpac
• IFOP poll: Macron to beat Le Pen 60.5/39.5
• NZD/USD extends gains to new two-week high post-GDT
• United States API Weekly Crude Oil Stock up to 4.5M from previous -0.531M